INCOME FROM HOUSE PROPERTY (SECTION 22 TO 27)

1. Property means any building or land appurtenant (attached) thereto

2. Section 22 is related to chargeability of any income under the head Income from House Property.

3. For chargeability of annual value of any property under this head, following conditions should be
satisfied :

i. The property must consist of any buildings or lands appurtenant thereto.

ii. Assessee must be the owner of the property.

iii. The property must not be occupied by the assessee for the purpose of any business or
profession carried on by him, the profits of which are chargeable to income tax.

4. Annual value is the basis for corruption of income under this head.

5. Section 23(1) explains how annual value will be determined. According to this section the annual value
of any property shall be deemed to be –

a. Expected rent.

b. If actual rent received or receivable for let out property is more than expected rent, then actual
rent shall be anuual value.

c. Due to vacancy during the whole or any part of the previous year the actual rent received or
receivable of the let out property is less than expected rent, then this amount will be annual value.

6. The provision of Section 23 states that any taxes levied by any local authority (for eg. Municipal
authority) in respect of the property shall be deducted from annual value in the following
conditions :

i. The taxes levied should be paid by the owner not by the tenant.

ii. Taxes should be paid actually during the previous year. Taxes may be related to arrears of
taxes/advances of taxes.

Example : Mr. X has paid municipal taxes Rs. 5,000 for let out property and his tenant Mr. Ram has paid
Rs. 2,000 for the previous year 2015-16. Mr. X has also paid arrear of previous year Rs.
8,000 as on 31.03.2016 paid and Rs. 4,000 paid as on 31.04.2016. Calculate how much
municipal taxes should be deduced from Gross Annual Value for the previous year 2015-
16. Assessment year 2016-17.

Total Municipal taxes to be deducted

Mr. X (owner) Rs. 5,000

Mr X (arrears) paid Rs. 8,000

As on 31.03.2016

As on 31.04.2016 Nil (as paid p.y. 16-17)

7. Explanation of Section 23(i) states that actual rent received or receivable by the owner does not include
unrealized rent. (actual rent-unrealized rent)

8. Unrealized rent is subject to satisfaction of rule 4 which is as follows :

a. The tenancy is bona fide.

b. The defaulting tenant has vacated, or steps have been taken to compel him to vacate
the property.

c. The defaulting tenant is not in occupation of any other property of the assessee.

d. The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfies the A.O. that legal proceedings would be useless

9. Standard Rent is governed by Rent Control Act. Expected rent will never be more than standard rent. It
may be less than standard rent.

Example : M.V. = Rs. 2,00,000

F.R. = Rs. 3,00,000

S.R. = Rs. 4,00,000

Ans. GAV = Rs. 3,00,000

10. How to compute Gross Annual Value if subject to unrealized rent –

Step I : Find out expected rent

Step II : Actual rent – unrealized

Step III : Compare Step I and Step II and more will be Gross Annual Value.

11. If subject to vacancy

Step I : Find out expected rent

Step II : Actual rent – vacancy period

12. If subject to unrealized and also vacancy period.

Step I : Find out expected rent

Step II : Actual rent – unrealized rent

Step III : Whichever is higher

Step IV : Less vacancy period

That will be GAV

13. Section 23(2)

a. states that annual value of one self occupied property ( property for own residence) will be nil

b. could not occupy residential house due to employment business to other place.

14. Section 23 (4)

a. where SOP is more than one. The assessee may opt one house as SOP.

b. other SOP will be deemed to be let out.

15. Section 23(5) w.e.f. 01.04.2018 inserted by finance act 2017

Where any building or land appurtenant is held as stock in trade and any part of the property is not let out
during the previous year, the annual value of such property for the period upto one year
from the end of the financial year in which the completion certificate has been obtained.

16. Deductions Only two deductions u/s 24 (a) standard deduction and u/s 24 (b) interest on borrowed
capital are allowable. Other expenses regarding property is not allowable under this head.
Insurance premium, electricity bill, Ground rent, repairs.

17. U/s 24 (a) Standard deduction = 30% of net annual value.

18. U/s 24 (b) If property has been purchased (acquired), constructed, repaired, renewed or reconstruction
with borrowed capital, the amount of any interest payable on such capital is allowable.

19. Let out

20. But in case of SOP ceiling is involved. Only Rs. 30,000 . However in some cases Rs. 2,00,000 are
allowable.
21. If following three each conditions are satisfied , Rs. 2,00,000 allowed as deduction on borrowed
capital –

i. Capital must be borrowed on 01.04.1999 or after 01.04.1999

ii. Acquisition or construction must be completed within 5 years (w.e.f 01.04.2017)(p.y. 3

from the end of the financial year in which capital was borrowed.

iii. Capital must be borrowed for the purposes of acquisition or construction of the
property.

22. Pre construction period starts from the date of loan to 31 march of the previous year of date of
acquisition/construction or date of repayment of loan whichever is higher.

Example- Date of acquisition is 30.02.2001. Date of loan is 31.05.1999.

Period. 31.05.1999 to 31.03.2000

23. Pre construction period- interest is allowed to be deducted in five equal installments which start from
the F.Y. of date of acquisition/construction and next four F.Y.

Example : pre construction period total interest = Rs. 5,000

Allowable : 5000/5 = 1,000/1000/1000/1000/1000

If date of acquisition/construction is 30.02.2001

Allowable is Rs. 1,000 in F.Y. 2000-01/01-02/02-03/03-04/04-05

24. New loan means for the purpose of repayment of such capital.

25.

26. Section 25 A (1) states that arrears of rent received from tenant/unrealized rent realized from a tenant
shall be deemed to be income under this head.

27. 25 A (2)

30% of arrears of rent is allowable as deductions

28. Section 27 explains deemed owner of any property.

ii. The holder of an impartible estate.

iii. A member of co-operative society, company or other AOP to whom allotted or leased under house
scheme.

iv. A person who comes to have control over the property in part performances of a contract of the nature
referred in section 53A of the transfer of property act. A person who has taken a property
on lease not less than 12 years. (269UA (f))

29. Deduction u/s 24 (b) interest on borrowed capital is available on accrual basis. It should be claimed
as deduction on yearly basis even if the interest is not actually paid.

30. Interest on unpaid interest is not deductible.

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

32. Interest on fresh loan, taken for repayment of old loan is allowable deduction.

A. Expected Rent = MV

FR

Standard Rent

B. Actual Rent – Unrealized Rent

That will be GAV

B. Actual Rent – Unrealized Rent

Step II whichever is more

Step III vacancy amount

Step IV Less Step II – Step III

Step V GAV

 Where a house property is self occupied for a part of the year and let out for remaining part of the
year then it will be treated as let out property.
Questions

1. Mr. X is the owner of three houses, which are all let out and are not governed by the Rent Control Act.
From the following particulars find out the gross annual value in each case:

Particulars I II III
1. Municipal Value 30,000 20,000 35,000
2. Fair Rent 36,000 24,000 32,000
3. Actual (De
facto)Rent