Direct Taxation - Income from House Property

 

Direct Taxation

INCOME FROM HOUSE PROPERTY

 

Part A: Discussion of the relevant provisions of the Income Tax Act, 1961 along with different computation tables and techniques.

Part B: 14 Illustrations with solutions

Part A:

   How to compute income from a let out house property

Particulars	Rs	Rs
Gross annual value (GAV)		×××
LESS: Municipal taxes		×××
Net annual value (NAV)		×××
LESS: Deduction u/s 24:
Standard deduction (30% of NAV)	×××
Interest on borrowed capital	×××	×××
TAXABLE INCOME FROM HOUSE PROPERTY		×××

 

Conditions for property income to be chargeable to income tax

Property income is chargeable to income tax under the head “Income from house property” if the following three conditions are satisfied:

1.  The property should consist of any buildings or lands appurtenant thereto;

2.  The assessee should be the owner of the property;

3.  The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income tax.

 

Cases when property income is not chargeable to income tax

In the following cases rental income (i.e. property income) is not chargeable to tax:

1.  Income from farm house;

2.  Annual value of any one place of an ex-ruler;

3.  Property income of a local authority;

4.  Property income of an approved scientific research association;

5.  Property income of an educational institution and hospital;

6.  Property income of a trade union;

7.  Annual value of any house property held for charitable purpose;

8.  Property income of a political party;

9.  Property used for own business or profession;

10. One self-occupied property.

 

Gross Municipal value (GMV)

It is the value of a house property fixed by the municipal authority for collecting municipal tax. In metro cities (i.e. Delhi, Mumbai, Chennai and Kolkata) municipal authorities determine net municipal value (NMV) by deducting 10% of the gross municipal value on account of repairs and an allowance for service taxes (such as sewerage tax and water tax) from gross municipal value for collecting municipal tax. The net municipal value of a house property in case of any of these metro cities (when the gross municipal value, instead of the net municipal value, is given in the problem), therefore, can be calculated with the help of following equation:

 

NMV = GMV − 10% of GMV − Sewerage Tax (say x% of NMV) − Water Tax (say y% of NMV)

 

The gross municipal value of a house property (when the net municipal value, instead of the gross municipal value, is given in the problem) can also be calculated with the help of above equation.

Fair rent (FR)

Fair rent of a house property is the rent fetched by a similar house property in the same or similar locality.

 

Standard rent (SR)

Standard rent of a house property is the maximum rent which a person can legally recover from his tenant under the Rent Control Act.

 

Reasonable expected rent (RER)

GMV or FR, whichever is higher, subject to maximum of SR, is reasonable expected rent.

 

Gross annual value (GAV)

COMPUTATION OF GROSS ANNUAL VALUE OF LET OUT PROPERTY

(If there is no vacancy period)

	Particulars	Rs
A	RER of the property (For the entire period of occupation during the previous year)	×××
B	Actual rent received or receivable by the owner during the previous year for the let out period	×××
C	Unrealised rent of the current previous year	×××
D	B – C	×××
E	GAV = A or D, whichever is higher	×××

 

COMPUTATION OF GROSS ANNUAL VALUE OF LET OUT PROPERTY

(If there is vacancy period)

	Particulars	Rs
A	RER of the property (For the entire period of occupation during the previous year)	×××
B	Actual rent received or receivable by the owner during the previous year for the period during which the property was available for let out	×××
C	Unrealised rent of the current previous year	×××
D	B – C	×××
E	Loss due to vacancy within the period during which the property was available for let out	×××
F	D − E	×××
G	If ‘D’ ≥ ‘A’ , GAV = ‘F’	×××
	If ‘D’ < ‘A’ , GAV = ‘A’	×××

Note: “Available for let out” means “Not self-occupied by the owner for residential purpose”.

 

Important points in regard to computation of gross annual value

1.  If the tenant pays a composite rent of property as well as certain benefits provided by the landlord, composite rent must be disintegrated and only the rent of the let out property would be considered in order to determine the actual rent received/receivable during the previous year.

2.  Tenant’s share of municipal tax realised from the tenant cannot be added to actual rent received/receivable, as it is the tenant’s duty to pay municipal tax.

3.  If the tenant has undertaken to bear the cost of repairs, the amount spent by the tenant cannot be added to actual rent received/receivable.

4.  A non-refundable deposit will be included in actual rent received/receivable on pro rata basis.

5.  A refundable deposit cannot be included in actual rent received/receivable.

6.  Notional interest on refundable deposit will be included in actual rent received/receivable during the previous year if such deposit is taken from the tenant for the purpose of compensating short payment or non-payment of rent.

7.  Advance rent cannot be actual rent received/receivable of the year of receipt.

8.  Commission paid by the owner of a property to a broker for rental income is not deductible.

9.  Unrealised rent (which the owner could not realise) shall be excluded from actual rent received/receivable only if the following conditions are satisfied as per Rule: 4 of the Act –

 

Condition 1	The tenancy is bona fide.
Condition 2	The defaulting tenant has vacated, or steps have been taken to compel him to vacate the house property.
Condition 3	The defaulting tenant is not in the occupation of any other house property of the assessee at any time during the previous year.
Condition 4	The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

 

 

Deduction of municipal taxes (property taxes)

1.  Municipal taxes (including service taxes) calculated on municipal value, are levied by the local authority in respect of the house property. These taxes are allowable as deduction from the GAV subject to the following two conditions:

          (a)   These should be borne by the assessee (owner); and

          (b)   These should be actually paid by him during the previous year.

2.  If property taxes levied by a local authority for a particular previous year are not paid during that year, no deduction shall be allowed in computation of income from house property for that year.

3.  However, if in any subsequent year the arrears are paid, the amount so paid is allowed as deduction in computation of income from house property for that year.

4.  Thus, irrespective of the previous year in which the liability to pay municipal taxes arises, the deduction in respect of such taxes will be allowed only in the year of actual payment.

5.  In case of property situated outside India, taxes levied by local authority of the country in which the property is situated is deductible.

6.  In respect of house property self-occupied for residential purpose for which GAV is taken to be nil, deduction of municipal taxes paid is not allowed.

 

Deduction u/s 24

There are two deductions available u/s 24 as follows:

(i)  Standard deduction, and

(ii) Interest on borrowed capital.

 

STANDARD DEDUCTION

30% of NAV is deductible irrespective of any expenditure incurred by the taxpayer.

 

INTEREST ON BORROWED CAPITAL

1.  Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.

2.  It is deductible on accrual basis.

3.  Interest on unpaid interest is not deductible.

4.  No deduction is allowed for any brokerage or commission for arranging the loan.

5.  Interest on a fresh loan, taken to repay the original loan raised for the aforesaid purposes, is allowable as deduction.

6.  IN THE CASE OF A LET OUT HOUSE PROPERTY, interest on borrowed capital is deductible fully without any maximum ceiling.

7.  INTEREST OF PRE-CONSTRUCTION PERIOD i.e. interest on borrowed capital raised for the acquisition or construction of a house property and pertaining to a period prior to the previous year in which such property has been acquired or constructed, to the extent it is not allowed as a deduction under any other provision of the Act, will be deducted in five equal annual instalments, commencing from the previous year in which the house is acquired or constructed.

8.  PRE-CONSTRUCTION PERIOD, for this purpose, means the period commencing on the date of borrowing and ending on −

    (a) 31^st March immediately prior to the date of completion of construction or date of   acquisition, as the case may be, or

       (b)   Date of repayment of loan, whichever is earlier.

9.  INTEREST OF PRE-CONSTRUCTION PERIOD is deductible in five equal annual instalments. The first instalment is deductible in the year in which construction of property is completed or in which property is acquired.

10. Interest is calculated on the basis of number of days. While the day of borrowing is included, the day of repayment of loan is excluded.

 

How to compute income from self-occupied house property

1.  IF SELF-OCCUPIED FOR BUSINESS PURPOSE

     If the self-occupied property is used by the owner for the purpose of carrying on his business or profession, no income is chargeable to tax under the head “Income from house property”. The assessee, in such a case, is not entitled to claim any deduction on account of rent in respect of such house property in computing taxable profits of the business or profession. Any rent collected from such house property, being incidental to the business of the assessee, is assessable as business income u/s 28.

 

2.  IF SELF-OCCUPIED FOR OWN RESIDENTIAL PURPOSE

     If the assessee has occupied more than two house properties for his own residential purposes, only two house properties (according to the assessee’s own choice) shall be treated as self-occupied and all other house properties shall be treated as “deemed to be let out” house properties. But here the important point to take note of is that in case of self-occupied house property used for own residential purpose, GAV shall be taken to be nil. The procedure for determining taxable income of a self-occupied property can be discussed under four different situations as follows:

 

Situation: 1

If such property is used throughout the previous year for own residential purpose, and it is not let out or put to any other use −

     TAX TREATMENT:

   Nothing is taxable in this case. Only interest on borrowed capital is deductible subject to maximum of Rs 30,000 or Rs 2, 00,000, as the case may be. GAV of such house property shall be taken to be nil.

     CONDITIONS FOR MAXIMUM CEILING OF Rs 2, 00,000:

    If the following four conditions are satisfied, interest on borrowed capital is deductible up to maximum Rs 2, 00,000:

          (a)   Capital is borrowed on or after 1.4.1999.

          (b)   Capital is borrowed for acquiring or constructing a house property.

       (c)   The acquisition or construction should be completed within 5 years from the end of financial year in which the capital was borrowed.

         (d)   The amount of loan and the amount of interest payable thereon should be certified by the person extending the loan.

 

     If the above four conditions are not satisfied, interest on borrowed capital is deductible up to maximum Rs 30,000.

 

     Situation: 2

     If such property could not be occupied throughout the previous year because of employment, business or profession of the owner carried on at some other place and no other benefit is derived from the same property by the owner −

     TAX TREATMENT:

     Nothing is taxable in this case. Only interest on borrowed capital is deductible subject to maximum of Rs 30,000 or Rs 2, 00,000, as the case may be. GAV of such house property shall be taken as the nil.

    

     Situation: 3

     If only a part of the house property (being independent residential unit) is self-occupied and the other part is let out −

     TAX TREATMENT:

     GAV of the residential unit, which is self-occupied, will be taken as the nil. Interest on borrowed capital will be deducted up to Rs 30,000 or Rs 2, 00,000, as the case may be. GAV and income of the unit which is let out will be computed as per the rules applicable for a let out property.

    

     Situation: 4

     If such house property is self-occupied for a part of the year and let out for the other part −

     TAX TREATMENT:

     The house property will be treated as let out house property and GAV and income of the house property will be computed as per the rules applicable for a let out property.

 

How to compute income from “deemed to be let out” house property

If the assessee has occupied more than two house properties for his own residential purposes, only two house properties (according to the assessee’s own choice) are treated as self-occupied and all other house properties will be treated as “deemed to be let out” house properties. In the case of “deemed to be let out” house properties, the taxable income will be calculated in the manner explained in case of a let out house property. But one important thing to take note of is that in case of “deemed to be let out” house property, GAV shall be taken as RER.

 

Annual value of property held as stock-in-trade

Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.

 

Provisions for arrears of rent and unrealised rent received subsequently [Sec: 25A]

(1)   The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head "Income from house property", whether the assessee is the owner of the property or not in that financial year.

(2)   A sum equal to thirty per cent of the arrears of rent or the unrealised rent referred to in sub   section (1) shall be allowed as deduction.

 

Further discussion on treatment of composite rent

Apart from recovering rent of the building, in some cases, the owner gets rent of other assets (like furniture, plant, machinery, etc.) or he charges for different services provided in the building (like lift, security, air conditioning, electricity, water supply, scavenging, watchman, etc.). The total amount so recovered including the rent of other assets and the charges for different services as mentioned above, is known as composite rent. The tax treatment of the composite rent is as follows –

 

1.   WHERE COMPOSITE RENT INCLUDES RENT OF BUILDING AND

      CHARGES FOR DIFFERENT SERVICES

If the owner of a house property gets a composite rent in the form of rent for the property as well as charges for different services rendered to the tenants, the composite rent is to be split up and the sum which is attributable to the use of property is to be assessed and charged to tax under the head “Income from house property” u/s 22. The amount which relates to rendition of the services is to be charged to tax either under the head “Profits and gains of business or profession” u/s 28 or under the head “Income from other sources” u/s 56, as the case may be.

 

2.   WHERE COMPOSITE RENT INCLUDES RENT OF BUILDING AND

      RENT OF OTHER ASSETS, AND THE TWO LETTINGS ARE INSEPARABLE

If there is letting of machinery, plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable (in the sense that letting of one is not acceptable to the other party without letting of the other), the composite rent as a whole is taxable either as business income u/s 28 or as income from other sources u/s 56, as the case may be. This rule is applicable even if the total sum receivable for the two lettings is fixed separately.

 

3.   WHERE COMPOSITE RENT INCLUDES RENT OF BUILDING AND

      RENT OF OTHER ASSETS, AND THE TWO LETTINGS ARE SEPARABLE

If there is letting out of building and letting out of other assets and the two lettings are separable (in the sense that letting of one is acceptable to the other party without letting of the other), the income from letting out of building is taxable under the head “Income from house property” u/s 22 and the income from letting out of other assets is taxable either as business income u/s 28 or as income from other sources u/s 56, as the case may be. This rule is applicable even if the assessee receives composite rent from his tenant for two lettings.

Part B:

 

Illustration: 1

Find out the Gross annual value in case of the following properties (Rs in ’000)

Particulars	H1	H2	H3	H4	H5	H6
Gross Municipal Value p.a.	200	300	400	500	300	300
Fair rent p.a.	300	600	750	180	200	400
Standard rent under the Rent Control Act p.a.	300	180	280	225	250	240
Actual rent p.a.	600	900	300	240	216	240
Property remains vacant (in number of month)	1	3	2	1	2	1

 

Solution:

Computation of GAV

	Particulars	H1	H2	H3	H4	H5	H6
	GMV	200	300	400	500	300	300
	FR	300	600	750	180	200	400
	SR	300	180	280	225	250	240
A	RER	300	180	280	225	250	240
B	ARR	600	900	300	240	216	240
C	Unrealised Rent	Nil	Nil	Nil	Nil	Nil	Nil
D	B – C	600	900	300	240	216	240
E	Loss due to vacancy	50	225	50	20	36	20
F	D – E	550	675	250	220	180	220
G	D < A ∴ GAV = A					250
	D ≥ A ∴ GAV = F	550	675	250	220		220

 

Illustration: 2

Find out the gross annual value in respect of the following properties for the A.Y. 2020-21 (Rs in ’000)

Particulars	H1	H2	H3
Gross Municipal value	150	180	120
Fair rent	140	140	240
Standard rent	120	240	300
Actual rent if property is let out throughout the prev. yr.	180	300	150
Unrealised rent of the previous year	25	40	20
Vacancy period (in number of months)	3	1	-

 

Solution:

Computation of GAV

	Particulars	H1 (Rs)	H2 (Rs)	H3 (Rs)
	GMV	150	180	120
	FR	140	140	240
	SR	120	240	300
A	RER	120	180	240
B	ARR	180	300	150
C	Unrealised Rent	25	40	20
D	B – C	155	260	130
E	Loss due to vacancy	45	25	Nil
F	D – E	110	235	130
G	GAV = A or D, whichever is higher			240
	D > A ∴ GAV = F	110	235

 

Illustration: 3

Find out the gross annual value in the following cases for the A.Y. 2020-21:

Particulars	H1 (Rs)	H2 (Rs)
Municipal value p.a.	60,000	60,000
Fair rent p.a.	70,000	70,000
Standard rent under the Rent Control Act p.a.	80,000	50,000
Actual rent p.m.:
From April 1, 2019 to July 31, 2019	5,000	6,000
From October 1, 2019 to February, 2020	9,000	8,500
For the remaining period properties were vacant.

 

Solution:

Computation of GAV

	Particulars	H1 (Rs)	H2 (Rs)
	GMV	60,000	60,000
	FR	70,000	70,000
	SR	80,000	50,000
A	RER	70,000	50,000
B	ARR [5,000 × 6 + 9,000 × 6], [6,000 × 6 + 8,500 × 6]	84,000	87,000
C	Unrealised Rent	Nil	Nil
D	B − C	84,000	87,000
E	Loss due to vacancy [5,000 × 2 + 9,000],[6,000 × 2 + 8,500]	19,000	20,500
F	D − E	65,000	66,500
G	D > A ∴ GAV = F	65,000	66,500

 

Illustration: 4

Find out the gross annual value in respect of the following properties for A.Y. 2020-21:

(Rs in thousands)

Particulars	H1	H2	H3
Municipal value p.a.	500	800	600
Fair rent p.a.	400	900	600
Standard rent under the Rent Control Act p.a.	700	720	700
Actual rent receivable for the period actually let out	350	540	600
Unrealised rent of the previous year 2019-20	10	Nil	150
Period when the property remains vacant (in months)	5	3	2

 

Solution:

   Computation of GAV 

(Rs in thousands)

	Particulars	H1 (Rs)	H2 (Rs)	H3 (Rs)
	GMV	500	800	600
	FR	400	900	600
	SR	700	720	700
A	RER	500	720	600
B	ARR	600	720	720
C	Unrealised Rent	10	Nil	150
D	B – C	590	720	570
E	Loss due to vacancy	250	180	120
F	D − E	340	540	450
G	D ≥ A ∴ GAV = F	340	540
	D < A ∴ GAV = A			600

 

Illustration: 5

Mr. Rajesh owns two house properties both of which are let out. Compute his income from the following details:

Particulars	H1 (Rs)	H2 (Rs)
Gross Municipal value	1,00,000	2,00,000
Fair rent	95,000	2,10,000
Standard rent	90,000	2,00,000
Actual rent receivable	1,00,000	1,80,000
Unrealised rent of current year	8,000	2,000
Municipal tax	10%	1,000
Fire insurance	2,000	1,200
Repairs	Nil	2,000
Interest on loan for construction (@ 12%)	10,000	Nil

 

Other Information:

(a) Loan taken for construction is still unpaid.

(b) Municipal tax of H1 is still unpaid, while, that of H2 is half paid by tenant.

 

Solution:

Computation of income of Mr. Rajesh from house property for the AY 2020 – 21

	Particulars	H1 (Let Out) Rs	H2 (Let Out) Rs
	GMV	1,00,000	2,00,000
	FR	95,000	2,10,000
	SR	90,000	2,00,000
A	RER	90,000	2,00,000
B	ARR	1,00,000	1,80,000
C	Unrealised Rent	8,000	2,000
D	B − C	92,000	1,78,000
E	GAV = A or D whichever is higher	92,000	2,00,000
	Less: Municipal tax	Nil	(500)
	NAV	92,000	1,99,500
	Less: Deduction u/s 24:
	i)     Standard deduction (30% of NAV)	(27,600)	(59,850)
	ii)    Interest on loan	(10,000)	Nil
	Income from house property	54,400	1,39,650

 

Total income from house property (54,400 + 1,39,650)

1,94,050

 

Illustration: 6

Mr. Pandey, owner of three houses in Chennai, furnished the following information. Compute his income from house property for the assessment year 2020-21:

Particulars	H1 (SO)	H2 (SO)	H3 (SO)
Standard rent under Rent Control Act	1,50,000	15,00,000	18,00,000
Municipal value	2,00,000	13,00,000	13,50,000
Fair rent	2,50,000	16,00,000	19,00,000
Municipal tax (10% of municipal value) paid
Interest on loan taken for purchases of houses	90,000	1,70,000	1,65,000
(Loan taken in P.Y. 2016-17)

 

Solution:

Computation of income of Mr. Pandey from house property for the AY 2020 – 21

Particulars	House – 1 (DLO) Rs	House – 2 (SORP) Rs	House – 3 (SORP) Rs
Municipal value	2,00,000
Fair rent	2,50,000
Standard rent	1,50,000
RER	1,50,000
GAV (GAV for DLO Property is RER)	1,50,000	Nil	Nil
LESS: Municipal tax paid (2, 00,000 × 10%)	20,000
NAV	1,30,000	Nil	Nil
Total NAV			1,30,000
LESS: Deduction u/s 24
Standard deduction (30% of NAV)			(39,000)
Interest on borrowed capital: (90,000 + 2,00,000)			(2,90,000)
Income from house property			(1,99,000)

 

Note:

Here all the three houses given are self-occupied. As per Income Tax Rules any two out of these three houses can be treated as self-occupied for residential purpose and the remaining one will automatically be treated as “deemed to be let out” house property. Here, House 2 and House 3 should be treated as self-occupied for residential purpose because apparently each of these two houses has much higher GAV than that of House 1 and GAV of self-occupied residential house property is nil.

Assumption:

In solving the above problem it has been assumed that all the four conditions required to be fulfilled for availing the maximum deduction of Rs 2,00,000 u/s 24 (b) have been fulfilled by the assessee.

 

Illustration: 7

Compute income under the head ‘Income from house property’ of Sri from the following information:

Particulars	H1 (SO)	H2 (SO)	H3 (SO)	H4 (Own Business)
Gross Municipal Value	3,00,000	2,00,000	7,00,000	3,00,000
Fair Rent	2,00,000	2,00,000	6,00,000	1,20,000
Standard Rent	3,00,000	2,40,000	7,00,000	2,00,000
Municipal Tax	15%	15%	15%	15%
Repairs	13,000	4,000	8,000	8,000
Ground Rent	20,000	Nil	Nil	6,000
Land Revenue	Nil	10,000	Nil	Nil
Interest on Loan	40,000	1,00,000	2,10,000	20,000
Loan taken on	1998-99	1998-99	2016-17	1999-00

 

Solution:

Computation of income if the property is self-occupied or deemed to be let out

Particulars	Rs	Rs	Rs
If self-occupied:	H1 + H2	H1 + H3	H2 + H3
GAV	Nil	Nil	Nil
LESS: Municipal tax	(75,000)	(1,50,000)	(1,35,000)
NAV	Nil	Nil	Nil
LESS: Deduction u/s 24:
Standard deduction (30% of NAV)	Nil	Nil	Nil
Interest on borrowed capital	(30,000)	(2,00,000)	(2,00,000)
INCOME FROM HOUSE PROPERTY	(30,000)	(2,00,000)	(2,00,000)
If deemed to be let out:	H1	H2	H3
Gross Municipal Value (GMV)	3,00,000	2,00,000	7,00,000
Fair Rent (FR)	2,00,000	2,00,000	6,00,000
Standard Rent (SR)	3,00,000	2,40,000	7,00,000
Reasonable expected rent (RER)	3,00,000	2,00,000	7,00,000
GAV (GAV for DLO Property is RER)	3,00,000	2,00,000	7,00,000
LESS: Municipal tax	(45,000)	(30,000)	(1,05,000)
NAV	2,55,000	1,70,000	5,95,000
LESS: Deduction u/s 24:
Standard deduction (30% of NAV)	(76,500)	(51,000)	(1,78,500)
Interest on borrowed capital	(40,000)	(1,00,000)	(2,10,000)
INCOME FROM HOUSE PROPERTY	1,38,500	19,000	2,06,500

 

Computation of net income under different options for the assessment year 2020 − 21

	DLO	SORP	Total Income from House Property
Option 1	H1	H2 + H3
Income from house property	1,38,500	(2,00,000)	(61,500)
Option 2	H2	H1 + H3
Income from house property	19,000	(2,00,000)	(1,81,000)
Option 3	H3	H1 + H2
Income from house property	2,06,500	(30,000)	1,76,500

 

Sri should, therefore, opt for Option 2 i.e. his net income from house property Rs (1, 81,000).

 

Illustration: 8

Miss Paro has a house property having two separate residential units (unit ‘A’ covering 40% of total area and unit ‘B’ covering 60% of total area). Unit A is self-occupied by the assessee and unit B is let out to Sri Devdas for a monthly rent of Rs 3,000. With the following further information, compute her taxable income from house property:

Municipal Value	Rs 1,00,000	Municipal Tax	10%
Fair Rent	Rs 1,20,000	Interest on Loan	Rs 30,000
Standard Rent	Rs 2,00,000	Annual charge	Rs 5,000

 

Solution:

Computation of income of Miss Paro from house property for the AY 2020 – 21

	Particulars	Unit A – SORP (40%) (Rs)	Unit B – LO (60%) (Rs)
	GMV		60,000
	FR		72,000
	SR		1,20,000
A	RER		72,000
B	ARR		36,000
C	Unrealised Rent		Nil
D	B − C		36,000
E	GAV = A or D whichever is higher	Nil	72,000
	Less: Municipal tax (1, 00,000 × 10% × 60%)	-	(6,000)
	NAV	Nil	66,000
	Less: Deduction u/s 24:
	i)     Standard deduction (30% of NAV)	-	(19,800)
	ii)    Interest on loan (Rs 30,000 in 40: 60 ratio)	(12,000)	(18,000)
	Income from house property	(12,000)	28,200

 

Total income from house property (28,200 – 12,000)

16,200

 

Illustration: 9

Mr. Rana used his house property for self-occupation till 1/8/2019 and let out the same for remaining period for rent of Rs 6,000 p.m. Compute his income from house property from the following details:

Municipal value: Rs 1, 00,000, Fair Rent: Rs 80,000, Standard Rent: Rs 96,000, Municipal tax: 16% and Interest on loan: Rs 10,000.

 

Solution:

Computation of income of Mr. Rana from house property for the AY 2020 – 21

	Particulars	Rs
	GMV	1,00,000
	FR	80,000
	SR	96,000
A	RER	96,000
B	ARR (6,000 × 8)	48,000
C	Unrealised Rent	Nil
D	B − C	48,000
E	GAV = A or D whichever is higher	96,000
	Less: Municipal tax (1, 00,000 × 16%)	(16,000)
	NAV	80,000
	Less: Deduction u/s 24:
	i)     Standard deduction (30% of NAV)	(24,000)
	ii)    Interest on loan	(10,000)
	Income from house property	46,000

 

Illustration: 10

Mr. Saha has a house property which he let out to tenant from 1/4/2019 to 1/12/2019 for a monthly rent of Rs 6,000 and thereafter self-occupied the same from 1/12/2019 to 1/3/2020. Compute his income from house property from the following details:

Municipal value: Rs 1, 00,000, Fair Rent: Rs 80,000, Standard Rent: Rs 50,000, Municipal tax: 16% and Interest on loan: Rs 10,000.

 

Solution:

Computation of income of Mr. Saha from house property for the AY 2020 – 21

	Particulars	Rs
	GMV	1,00,000
	FR	80,000
	SR	50,000
A	RER	50,000
B	ARR (6,000 × 9)	54,000
C	Unrealised Rent	Nil
D	B − C	54,000
E	Loss due to vacancy	6,000
F	D − E	48,000
G	‘D’ > ‘A’ , ∴ GAV = ‘F’ = 48,000	48,000
	Less: Municipal tax (1, 00,000 × 16%)	(16,000)
	NAV	32,000
	Less: Deduction u/s 24:
	iii)   Standard deduction (30% of NAV)	(9,600)
	iv)  Interest on loan	(10,000)
	Income from house property	12,400

 

Illustration: 11

Miss Rani used her house property for self-occupation till 1/9/2019 and let out the same for remaining period for rent of Rs 6,000 p.m. Municipal tax paid Rs 5,000, interest on loan accrued Rs 10,000. Compute her taxable income from house property.

 

Solution:

Computation of income of Miss Rani from house property for the AY 2020 – 21

	Particulars	Rs
	FR [(6,000 × 12)	72,000
A	RER	72,000
B	ARR (6,000 × 7)	42,000
C	Unrealised Rent	Nil
D	B − C	42,000
E	GAV = A or D whichever is higher	72,000
	Less: Municipal tax	(5,000)
	NAV	67,000
	Less: Deduction u/s 24:
	v)   Standard deduction (30% of NAV)	(20,100)
	vi)  Interest on loan	(10,000)
	Income from house property	36,900

 

Illustration: 12

Mr. Ajnabi has a house property in Cochin. The house property has two equal dimension residential units. Unit 1 is self-occupied throughout the year and unit 2 is let out for 9 months for Rs 10,000 p.m. and for remaining 3 months it was self-occupied. Compute his taxable income from the following details:

Municipal value Rs 2,00,000, Fair Rent Rs 1,60,000, Standard rent Rs 3,00,000, Municipal tax 10% (60% paid by assessee), Interest on loan Rs 40,000, Expenditure on repairs Rs 20,000.

 

Solution:

Computation of income of Mr. Ajnabi from house property for the AY 2020 – 21

	Particulars	Unit A – SORP (50%) (Rs)	Unit B – LO (50%) (Rs)
	GMV		1,00,000
	FR		80,000
	SR		1,50,000
A	RER		1,00,000
B	ARR (10,000 × 9)		90,000
C	Unrealised Rent		Nil
D	B − C		90,000
E	GAV = A or D whichever is higher	Nil	1,00,000
	Less: Municipal tax (2, 00,000 × 10% × 60% × 50%)	-	(6,000)
	NAV	Nil	94,000
	Less: Deduction u/s 24:
	iii)   Standard deduction (30% of NAV)	-	(28,200)
	iv)  Interest on loan (Rs 40,000 in 50: 50 ratio)	(20,000)	(20,000)
	Income from house property	(20,000)	45,800

 

Total income from house property (45,800 – 20,000)

25,800

 

Illustration: 13

Mr. Arun furnishes the following details relating to three house properties at Erode, Tamil Nadu, let out by him during the previous year 2019-20:

Particulars	H1 (Rs)	H2 (Rs)	H3 (Rs)
Gross municipal value	2,10,000	3,30,000	2,40,000
Fair rent	2,40,000	3,60,000	3,00,000
Standard rent	2,20,000	-	-
Let out period (months)	9	12	11
Vacant during the year for (Months)	3	-	1
Actual rent received	1,70,000	2,40,000	3,30,000
Interest on money borrowed	1,05,000	-	2,10,000
Land lease rent	-	-	24,000
Municipal tax paid being 2 months municipal value

 

On the basis of aforesaid information, you are requested to compute Mr. Arun’s taxable income from house property for the assessment year 2020-21.

 

Solution:

Income of Mr. Arun from house properties H1 and H3 for the AY 2020 – 21

	Particulars	H1 (Rs)	H3 (Rs)
	Gross Municipal Value	2,10,000	2,40,000
	Fair Rent	2,40,000	3,00,000
	Standard Rent	2,20,000	-
A	RER	2,20,000	3,00,000
B	ARR (For the period available for let out i.e. 12 months)	2,26,667	3,60,000
C	Unrealised Rent	-	-
D	B − C	2,26,667	3,60,000
E	Loss due to vacancy	56,667	30,000
F	D − E	1,70,000	3,30,000
G	For both the house, D > A. ∴ GAV = F	1,70,000	3,30,000
	Less: Municipal Tax	(35,000)	(40,000)
	NAV	1,35,000	2,90,000
	Less: Deduction u/s 24:
	i)    Standard Deduction (30% of NAV)	(40,500)	(87,000)
	ii)   Interest on money borrowed	(1,05,000)	(2,10,000)
	Income from house property	(10,500)	(7,000)

 

Income of Mr. Arun from house property H2 for the AY 2020 – 21

	Particulars	H2 (Rs)
	Gross Municipal Value	3,30,000
	Fair Rent	3,60,000
	Standard Rent	-
A	RER	3,60,000
B	ARR	2,40,000
C	Unrealised Rent	-
D	B − C	2,40,000
E	GAV = A or D, whichever is higher	3,60,000
	Less: Municipal Tax	(55,000)
	NAV	3,05,000
	Less: Deduction u/s 24:
	i)   Standard Deduction (30% of NAV)	(91,500)
	ii)  Interest on money borrowed	-
	Income from house property	2,13,500

 

Total income of Mr. Arun from house property (2,13,500 – 10,500 – 7,000)

1,96,000

 

Illustration: 14

Mr. Vikas owns a house property whose Municipal Value, Fair Rent and Standard Rent are Rs 96,000, Rs 1, 26,000 and Rs 1, 08,000 p.a. respectively.

 

During the financial year 2019-20, one-third portion of the house was let out for residential purpose at a monthly rent of Rs 5,000. The remaining two-third portion was self-occupied by him for residential purpose. Municipal Tax @ 11% of Municipal Value was paid by him during the year.

 

The construction of the house began in June, 2012 and was completed on 31.5.2015. Vikas took a loan of Rs 1, 00,000 on 1.7.2012 for the construction of building.

 

He paid interest on loan @ 12% p.a. and every month such interest was paid.

 

Compute income from house property of Mr. Vikas for the assessment year 2020-21.

 

Solution:

Computation of income of Mr. Vikas from house property for the AY 2020 – 21

	Particulars	Self-Occupied 2/3rd (Rs)	Let Out 1/3rd (Rs)
	Municipal Value	64,000	32,000
	Fair Rent	84,000	42,000
	Standard Rent	72,000	36,000
A	RER		36,000
B	ARR (Rs 5,000 × 12)		60,000
C	Unrealised Rent		-
D	B − C		60,000
E	GAV = A or D, whichever is higher	Nil	60,000
	Less: Municipal Tax (Rs 96,000 × 11% × 1/3)	-	3,520
	NAV	Nil	56,480
	Less: Deduction u/s 24:
	i)   Standard Deduction (30% of NAV)		(16,944)
	ii) Interest on loan [(18,600 × 2/3); (18,600 × 1/3)]	(12,400)	(6,200)
	Income from house property	(12,400)	33,336

 

Total income from house property (33,336 – 12,400)

20,936

 

Working notes: Interest on loan

Particulars	Rs
Pre-construction period interest on loan:
Pre-construction period: 1.7.2012 to 31.3.2015 ⇒ 33 months
Interest @ 12% p.a. on Rs 1,00,000 for 33 months ⇒ Rs 33,000
Pre-construction period interest is to be allowed in 5 equal instalments from the year of completion of construction i.e. P.Y. 2015-16 till the P.Y. 2019-20
∴ Pre-construction period interest for A.Y. 2020-21 = Rs 33,000 × 1/5 =	6,600
Post-construction period interest on loan:
For the A.Y. 2020-21 (Rs 1, 00,000 × 12%)	12,000
Total interest on loan for the A.Y. 2020-21	18,600