INCOME FROM HOUSE 4.

1
PROPERTY

UNIT – 2 : INCOME FROM HOUSE

PROPERTY

LEARNING OUTCOMES

After studying this chapter, you would be able to-

 comprehend when income is chargeable under the
head “Income from house property”;
 appreciate the meaning and tax treatment of
composite rent;
 determine annual value of different categories of
house property;
 compute income from house property for
different categories of house property;
 comprehend and apply the tax treatment on
recovery of unrealized rent and arrears of rent;
 compute income from co-owned property.

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 4.2 INCOME TAX
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2.1 CHARGEABILITY [SECTION 22]

(i) The process of computation of income under the head “Income from
house property” starts with the determination of annual value of the
property.
The concept of annual value and the method of determination is laid
down in section 23.
(ii) The annual value of any property comprising
of buildings or lands appurtenant thereto of which
the assessee is the owner is chargeable to tax under the head
“Income from house property”.
Exceptions: Annual value of the following properties are chargeable
under the head “Profits and gains of business or profession” -
(i) Portions of property occupied by the assessee for the purpose of
any business or profession carried on by him
(ii) Properties of an assessee engaged in the business of letting out of
properties.

2.2 CONDITIONS FOR CHARGEABILITY

(i) Property should consist of any building or land appurtenant
thereto.
(a) Buildings include not only residential buildings, but also
factory buildings, offices, shops, godowns and other
commercial premises.
(b) Land appurtenant means land connected with the building
like garden, garage etc.

It may be noted that Income from letting out of vacant land is,
however, taxable under the head “Income from other sources” or
“Profits and gains from business or profession”, as the case may
be.
(ii) Assessee must be the owner of the property
(a) Owner is the person who is entitled to receive income from
the property in his own right.
(b) The requirement of registration of the sale deed is not
warranted.
(c) Ownership includes both free-hold and lease-hold rights.

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 INCOME FROM HOUSE 4.3
(d) PROPERTY
Ownership includes deemed ownership (discussed later in point
2.11)

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(e) The person who owns the building need not also be the owner
of the land upon which it stands.
(f) The assessee must be the owner of the house property during
the previous year.
It is not material whether he is the owner in the assessment
year.
(g) If the title of the ownership of the property is under dispute in
a court of law,
the decision as to who will be the owner chargeable to
income- tax under section 22 will be of the Income-tax
Department till

However, in case of recovery of unrealized rent and arrears of rent,

ownership of that property is not relevant. (discussed later in point
2.9)
the court gives its decision to the suit filed in respect of such
property.
(iii) Use of property
The property may be used for any purpose,
but it should not be used by the owner for the purpose of any
business or profession carried on by him, the profit of which is
chargeable to tax.
The income earned by an assessee engaged in the business of
letting out of properties on rent would be taxable as
business income1.
(iv) Property held as stock-in-trade etc.
Annual value of house property will be charged under the head
“Income from house property”, where it is held by the assessee as
stock-in-trade of a business also.
 However, the annual value of property being held as stock in
trade would tw
be treated as NIL for a period oof years from the end of the
financial
year in which
certificate of completion of construction of the property is obtained
from the competent authority, if such property is not let-out
during such period [Section 23(5)].

2.3 COMPOSITE RENT

(i) Meaning of composite rent: The owner of a property may
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sometimes receive rent in respect of building as well as –
(1) other assets like say, furniture, plant and machinery.

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1
PROPERTY 7
Supreme Court ruling in Rayala Corporation (P) Ltd. v. Asstt. CIT (2016) 386 ITR 500

(2) for different services provided in the building, for e.g., –

(a) Lifts;
(b) Security;
(c) Power backup;
The amount so received is known as “composite rent”.
(ii) Tax treatment of composite rent
Where composite rent includes rent of building and charges for
different services (lifts, security etc.), the composite rent is has to be
split up in the following manner-
(a) the sum attributable to use of property is to be assessed
under section 22 as income from house property;
(b) the sum attributable to use of services is to be charged to
tax under the head “Profits and gains of business or
profession” or under the head “Income from other sources”,
as the case may be.
(iii) Manner of splitting up
If let out building and other assets are inseparable
Where composite rent is received from letting out of building and
other assets (like furniture) and
the two lettings are not separable i.e. the other party does not
accept letting out of building without other assets, then
the rent is taxable either as business income or income from
other sources, the case may be.
This is applicable even if sum receivable for the two lettings is fixed
separately.
If let out building and other assets are separable
Where composite rent is received from letting out of building and
other assets and the two lettings are separable i.e.
letting out of one is acceptable to the other party without letting
out of the other, then
(a) income from letting out of building is taxable under “Income
from house property”;
(b) Income from letting out of other assets is taxable under “Profits
and gains

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 4.12 INCOME TAX
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of business or profession” or “Income from other sources”,

as the case may be.

This is applicable even if a composite rent is received by the

assessee from his tenant for the two lettings.

2.4 INCOME FROM HOUSE PROPERTY SITUATED

OUTSIDE INDIA
(i) In case of a resident in India (resident and ordinarily resident in case
of individuals and HUF),
income from house property situated outside India is taxable,
whether such income is brought into India or not.
(ii) In case of a non-resident or resident but not ordinarily resident in
India,
income from a property situated outside India is taxable only if it
is received in India.

2.5 DETERMINATION OF ANNUAL VALUE

[SECTION 23]
Municipal
Determinati tax paid
on of Gross by the Net
Annual owner Annual
Value (GAV) during Value
the (NAV)
previous
(i) Determination of annual value
year for different types of house
properties
(1) Where the property is let out throughout the
previous year [Section 23(1)(a)/(b)]
Where the property is let out for the whole year, then the
GAV would be the higher of –
(a) Expected Rent (ER) and
(b) Actual rent received or receivable during the year
 The Expected Rent (ER) is the higher of fair rent (FR)
and municipal value (MV), but restricted to standard rent
 (SR).
For example, let us say the higher of FR and MV is X.
Then ER
© The Institute of Chartered = SR, if X>SR.
Accountants of India However, if X<SR, ER = X.
 INCOME FROM HOUSE 4.12
PROPERTY 9

 Expected Rent (ER) as per section 23(1)(a) cannot

exceed standard rent (SR) but it can be lower than
standard rent, in a case where standard rent is more
 than the higher of MV and FR.
Municipal value is the value determined by the municipal
 authorities for levying municipal taxes on house property.
Fair rent means rent which similar property in the same
 locality would fetch.
The standard rent (SR) is fixed by the Rent Control Act.
From the GAV computed above, municipal taxes paid by the
owner during the previous year are to be deducted to arrive at
the NAV.
ILLUSTRATION 1
Jayashree owns five houses in India, all of which are let-out.
Compute the GAV of each house from the information given below –
Particulars Hous Hous Hous Hous Hous
eI e II e III e IV eV
( `) ( `) ( `) ( `) ( `)
Municipal Value 80,000 55,000 65,000 24,000 80,000
Fair Rent 90,000 60,000 65,000 25,000 75,000
Standard Rent N.A. 75,000 58,000 N.A. 78,000
Actual rent 72,000 72,000 60,000 30,000 72,000
received/ receivable
SOLUTION
As per section 23(1), Gross Annual Value (GAV) is the higher of
Expected rent and actual rent received. Expected rent is higher of
municipal value and fair rent but restricted to standard rent.
Computation of GAV of each house owned by Jayashree
Particulars Hous Hous House Hous Hous
eI e II III e IV eV
(`) (`) (`) (`) (`)
(i) Municipal value 80,000 55,000 65,000 24,000 80,000
(ii) Fair rent 90,000 60,000 65,000 25,000 75,000
(iii) Higher of (i) & (ii) 90,000 60,000 65,000 25,000 80,000
(iv) Standard rent N.A. 75,000 58,000 N.A. 78,000

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(v) Expected 90,00 60,000 58,000 25,000 78,000

0
rent [Lower of
(iii) & (iv)]
(vi Actual rent 72,00 72,000 60,000 30,000 72,000
) received/receivable 0
GAV [Higher of 90,00 72,00 60,000 30,000 78,00
(v) & (vi)] 0 0 0
(2) Where let out property is vacant for part of the
year [Section 23(1)(c)]
Where let out property is vacant for part of the year and owing
to vacancy, the actual rent is lower than the ER, then
the actual rent received or receivable will be the GAV of the
property.
(3) In case of self-occupied property or unoccupied
property [Section 23(2)]
(a) Where the property is self-occupied for own residence or
unoccupied throughout the previous year,
its Annual Value will be Nil, provided no other benefit
is derived by the owner from such property.

The expression “Unoccupied property” refers to a

property which cannot be occupied by the owner by
reason of his employment, business or profession at a
different place and he resides at such other place in a
building not belonging to him.
(b) The benefit of “Nil” Annual Value is available only for
upto two self-occupied or unoccupied house
properties i.e.
for either one house property or two house properties.
(c) The benefit of “Nil” Annual Value in respecttwof upto
self- o
occupied house properties is available only to an individual/
HUF.
(c) No deduction for municipal taxes is allowed in respect of
such property/properties as annual value means value
determined after deduction of municipal taxes.
(4) Where a house property is let-out for part of the year
and self- occupied for part of the year [Section 23(3)]
(a) If a single unit of a property is self-occupied for part of
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 INCOME FROM HOUSE 4.13
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the year and
let-out for the remaining part of the year, then the ER for
the whole

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year shall be taken into account for determining the GAV.

(b) The ER for the whole year shall be compared with the
actual rent for the let out period and whichever is
higher shall be adopted as the GAV.
(c) However, municipal tax for the whole year is
allowed as deduction provided it is paid by the
owner during the previous year.
(5) In case of deemed to be let out property [Section 23(4)]
(a) Where the assessee owns more
tw properties for self-
than occupation, then the income
o tw properties, at the
from any
o
option of the assessee, shall be computed under the
self- occupied property category and their annual
value will be nil.
(b) The other self-occupied/unoccupied properties shall be
treated as “deemed let out properties”.
(c) This option can be changed year after year in a
manner beneficial to the assessee.
(d) In case of deemed let-out property, the ER shall be
taken as the GAV.
(e) The question of considering actual rent received/receivable
does not arise. Consequently,
no adjustment is necessary on account of property
remaining vacant or unrealized rent.
(f) Municipal taxes actually paid by the owner during the
previous year, in respect of the deemed let out
properties, can be claimed as deduction.
(6) In case of a house property held as stock-in-trade
[Section 23(5)]
(a) In some cases, property consisting of any buildings or
lands appurtenant thereto may be held as stock-in-trade,
and
the whole or any part of the property may not be let out
during the whole or any part of the previous year.
(b) In such cases, the annual value of such property or part of
the property shall be Nil.
(c) This benefit would be available for the tw
period upto
years o
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 INCOME FROM HOUSE 4.13
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from the end of the financial year in which certificate of
completion of construction of the property is obtained from
the competent authority.

(7) In case of a house property, a portion let out and a

portion self- occupied
(a) Income from any portion or part of a property which is
let out shall be computed separately under the “let out
property” category and the
other portion or part which is self-occupied shall be
computed under the “self-occupied property” category.
(b) There is no need to treat the whole property as a single
unit for computation of income from house property.
(c) Municipal valuation/fair rent/standard rent, if not given
separately,
shall be apportioned between the let-out portion and self-
occupied portion either on plinth area or built-up floor
space or on such other reasonable basis.
(d) Property taxes, if given on a consolidated basis, can be
bifurcated as attributable to each portion or floor or on a
reasonable basis.
Notional income instead of real income
Thus, under this head of income, there are circumstances where
notional income is charged to tax instead of real income. For
example –
 Where the assessee owns more than two house properties
for the purpose of self-occupation,
the annual value of any two of those properties, at the option of
the assessee, will be nil and
the other properties are deemed to be let-out and income has
to be computed on a notional basis by taking the Expected
Rent (ER) as the GAV.
 In the case of property let-out throughout the previous year, if
the Expected Rent (ER) exceeds the actual rent received or
receivable, then
ER is taken as the GAV.
 In the case of let-out property which is vacant for part of
the year, if

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the actual rent received or receivable for let out period is less
than the Expected Rent (ER) for whole year not owing to
vacancy, then ER for whole year is taken as the GAV.
 In case of a house property held as stock-in-trade by
assessee (which is not let out),
income has to be computed on a notional basis by taking
the Expected Rent (ER) as the GAV after 2 years from
the end of the financial year in which certificate of
completion of construction of the property is obtained from the
competent authority.

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(ii) Treatment of unrealised rent [Explanation below section

23(1)]
(1) The Actual rent received/receivable should not include any
amount of rent which is not capable of being realised.
(2) However, the conditions prescribed in Rule 4 should be satisfied.
They are –
(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 Assessing Officer that legal proceedings
would be useless.
(iii) Property taxes (Municipal taxes)
(1) Property taxes are allowable as deduction from the GAV subject
to the following two conditions:
(a) It should be borne by the assessee (owner); and
(b) It should be actually paid 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 the computation of income
from house property for that year.
(3) However, if in any subsequent year, the arrears are paid, then,
the amount so paid is allowed as deduction in computation of
income from house property for that year.
(4) Thus, we find that irrespective of the previous year in which
the liability to pay such taxes arises
according to the method of accounting regularly employed by
the owner, the deduction in respect of such taxes will be
allowed only in the year of actual payment by the owner.
(5) In case of property situated outside India, taxes levied by
local authority of the country in which the property is situated
is deductible2.

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2
CIT v. R. Venugopala Reddiar (1965) 58 ITR 439 (Mad)

(6) In respect of self-occupied/unoccupied house

property/properties for which “Nil” Annual Value benefit is
claimed,
deduction of municipal taxes paid is not allowable.
ILLUSTRATION 2
Rajesh, a British national, is a resident and ordinarily resident in India
during the
P.Y. 2021-22. He owns a house in London, which he has let out at £
10,000 p.m. The municipal taxes paid to the Municipal Corporation of
London is £ 8,000 during the
P.Y. 2021-22. The value of one £ in Indian rupee to be taken at ` 95.
Compute Rajesh’s Net Annual Value of the property for the A.Y. 2022-23.
SOLUTION
For the P.Y. 2021-22, Mr. Rajesh, a British national, is resident and
ordinarily resident in India. Therefore, income received by him by way of
rent of the house property located in London is to be included in the total
income in India. Municipal taxes paid in London is be to allowed as
deduction from the gross annual value.
Computation of Net Annual Value of the property of Mr.
Rajesh for A.Y. 2022-23
Particula `
rs
Gross Annual Value (£ 10,000  12  95) 1,14,00,000
Less: Municipal taxes paid (£ 8,000 95) 7,60,000
Net Annual Value (NAV) 1,06,40,00
0

2.6 DEDUCTIONS FROM ANNUAL VALUE

[SECTION 24]
(i) There are two deductions from annual value. They are –
(1) 30% of NAV; and
(2) Interest on borrowed capital
(1) 30% of NAV is allowed as deduction under section 24(a)
(a) This is a flat deduction and is allowed irrespective of
the actual expenditure incurred.
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(b) The assessee will not be entitled to deduction of

30%, in the following cases, as the annual value
itself is nil.
(i) In case of self-occupied properties or
(ii) In case of property held as stock-in-trade and
the whole or any part of the property is not let out
during the whole or any part of the previous year, upto 2
years from the end of the financial year in which
certificate of completion of construction of the property is
obtained from the competent authority.
(2) Interest on borrowed capital is allowed as deduction u/s
24(b)
Interest payable on loans borrowed for the purpose of
acquisition, construction, repairs, renewal or reconstruction can be
claimed as deduction.
Interest payable on a fresh loan taken to repay the original
loan raised earlier for the aforesaid purposes is also
admissible as a deduction.
Interest for pre-construction period:
 Pre-construction period is the period prior to the previous year
in which property is acquired or construction is completed.
Interest payable on borrowed capital for the period prior to the
previous year in which the property has been acquired or
constructed
(Pre- construction interest) as reduced by any part thereof
allowed as deduction under any other provision of the Act, can
be claimed as
deduction over a period of 5 years in equal annual installments
commencing from the year of acquisition or completion of
construction.
Interest for the year in which construction is
completed/ property is acquired:
Interest relating to the year of completion of construction/
acquisition of property can be fully claimed in that year
irrespective of the date of completion/ acquisition.
(ii) Deduction in respect of self-occupied or unoccupied property
where annual value is nil
(1) In this case, the assessee will be allowed a deduction on
account of interest (including 1/5th of the accumulated
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interest of pre- construction period) as under –

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S. Conditio Amount of
No ns Deduction
.
(a) Loan borrowed before Actual interest payable
1.4.99: Where the in aggregate for one
property has or two self-
been acquired, occupied properties,
constructed, subject to
repaired, renewed or maximum of ` 30,000.
reconstructed with
borrowed capital before 1.4.99.
(b) Loan borrowed on or after
1.4.99: Actual interest payable
(i) Where the property is in aggregate for one
acquired or constructed or two self-
with capital borrowed on occupied properties,
or after subject to
1.4.99 and such acquisition maximum of `
or construction is 2,00,000, if
certificate mentioned
completed within 5 years in (2) below is
from the end of the obtained.
financial year in which the
capital was borrowed.
(ii) Where the property is
Actual interest payable
repaired, renewed or
in aggregate for one
reconstructed with capital
or two self-
borrowed on or after
occupied properties,
1.4.99. subject to a
maximum of ` 30,000.
However, the total interest deduction under (a) and
(b) cannot
exceed ` 2,00,000.
ILLUSTRATION 3
Mr. Manas owns two house properties one at Bombay,
wherein his family resides and the other at Delhi, which is
unoccupied. He lives in Chandigarh for his employment
purposes in a rented house. For acquisition of house property
at Bombay, he has taken a loan of ` 30 lakh@10% p.a. on
1.4.2020. He has not repaid any amount so far. In respect of
house property at Delhi, he has taken a loan of ` 5
lakh@11% p.a. on 1.10.2020 towards repairs. Compute the
deduction which would be available to him under section 24(b)
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for A.Y.2022-23 in respect of interest payable on such loan.

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SOLUTION
Mr. Manas can claim benefit of Nil Annual Value in respect of his
house property at Bombay and Delhi, since no benefit is derived
by him from such properties, and he cannot occupy such
properties due to reason of his employment at Chandigarh,
where he lives in a rented house.
Computation of deduction u/s 24(b) for A.Y.2022-23
Particula `
rs
I Interest on loan taken for acquisition of
residential house property at Bombay
30,00,000 x 10% = ` 3,00,000
Restricted to ` 2,00,000 2,00,000
II Interest on loan taken for repair of
residential house property at Delhi
` 5,00,000 x 11% = ` 55,000
Restricted to ` 30,000 30,000
Total interest 2,30,000
Deduction under section 24(b) in respect of (I) 2,00,000
and (II) above to be restricted to
(2) Certificate to be furnished: For the purpose of claiming
deduction of
` 2,00,000 as per (b)(i) in the table given above, the assessee
should furnish a certificate from the person to whom any
interest is payable on the capital borrowed, specifying the
amount of interest payable by the assessee for the purpose of
such acquisition or construction of the property or conversion of
the whole or any part of the capital borrowed which remains
to be repaid as a new loan.
Important points:
(1) The ceiling limit would not apply to let-out/deemed let-out
property: The ceiling prescribed for self-occupied property as above
in respect of interest on loan borrowed
does not apply to a let out/ deemed let-out property.
(2) Interest allowable on accrual basis:
Deduction under section 24(b) for interest is available on accrual
basis.

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Therefore interest accrued but not paid during the year can also be
claimed as deduction.

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 INCOME FROM HOUSE 4.14
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(3) Unpaid purchase price would be considered as capital
borrowed:
Where a buyer enters into an arrangement with a seller to pay
the sale price in installments along with interest due thereon,
the seller becomes the lender in relation to the unpaid purchase
price and the buyer becomes the borrower.
In such a case, unpaid purchase price can be treated as capital
borrowed for acquiring property and interest paid thereon can
be allowed as deduction under section 24.
(4) Interest on unpaid interest is not deductible.
Deductions from Net Annual Value: At a Glance
Deductions allowed
from NAV

Let out/ Self occupied

deemed let property/
out property properties

Interest on
Standar Interest on borrowed
d borrowed capital u/s 24(b)
deductio capital u/s
n u/s 24(b)
where loan is where loan is
taken for repair, taken for
30% acquisition or
of Fully renewal or
reconstruction of construction of
NAV Allowe
house property house property
d

If loan is If loan
Maximum aken on
taken is
` 30,000
in toto for
before tor 1.4.99
after
1.4.99
one or
two self Acquisition or
occupied construction
properties completed
within 5 years
from the end of
the FY in which
the capital was
borrowed
+
Certificate
from lender
specifying
interest

No Ye
s
Maximum Maximum
` 30,000 in ` 2,00,000 in
toto for one toto for one or
or two self two self
occupied occupied
properties properties

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2.7 COMPUTATION OF “INCOME FROM HOUSE

PROPERTY” FOR DIFFERENT CATEGORIES
OF PROPERTY
(I) PROPERTY LET OUT THROUGHOUT THE PREVIOUS YEAR
Particulars Amoun
t
Computation of GAV
Step 1 Compute ER
ER = Higher of MV and FR, but restricted
to SR
Step 2 Compute Actual rent received/receivable
Actual rent received/receivable less unrealized
rent as per Rule 4 [See Note below for
alternate view]
Step 3 Compare ER and Actual rent received/receivable
Step 4 GAV is the higher of ER and Actual
rent received/receivable
Gross Annual Value (GAV) A
Less: Municipal taxes (paid by the owner during the B
previous year)
Net Annual Value (NAV) = (A-B) C
Less: Deductions u/s 24
(a) 30% of NAV D
(b) Interest on borrowed capital (actual
without any ceiling limit) F

E
Income from house property (C-F) G

Note - The income-tax returns, however, permit deduction of

unrealized rent from gross annual value. If this view is taken, the
unrealized rent should be deducted only after computing gross annual
value.
ILLUSTRATION 4
Anirudh has a property whose municipal valuation is ` 1,30,000 p.a. The
fair rent is

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 INCOME FROM HOUSE 4.14
5
` 1,10,000 p.a. andPROPERTY
the standard rent fixed by the Rent Control Act is `
1,20,000 p.a. The property was let out for a rent of ` 11,000 p.m.
throughout the previous year.

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Unrealised rent was ` 11,000 and all conditions prescribed by Rule 4 are
satisfied. He paid municipal taxes @10% of municipal valuation. Interest
on borrowed capital was
` 40,000 for the year. Compute his income from house property for
A.Y.2022-23.
SOLUTION
Computation of Income from house property of Mr. Anirudh for
A.Y. 2022-23
Particula Amount in `
rs
Computation of GAV
Step 1 Compute ER
ER = Higher of MV of ` 1,30,000 p.a. and 1,20,00
FR of 0
` 1,10,000 p.a., but restricted to SR of
` 1,20,000 p.a.
Step 2 Compute actual rent received/receivable
Actual rent received/ receivable less 1,21,00
unrealized rent as per Rule 4 = ` 1,32,000 0
- ` 11,000
Step 3 Compare ER of ` 1,20,000 and Actual
rent received/receivable of ` 1,21,000

Step 4 GAV is the higher of ER and Actual 1,21,00

rent received/receivable 0
Gross Annual Value (GAV) 1,21,000
Less: Municipal taxes (paid by the owner
during the previous year) = 10% of ` 13,000
1,30,000
Net Annual Value (NAV) 1,08,000
Less: Deductions under section 24
(a) 30% of NAV 32,400
(b) Interest on borrowed capital
(actual without any ceiling 40,000 72,400
limit)
Income from house property 35,600

Note – Alternatively, if as per income-tax returns, unrealized rent is

deducted from GAV, then GAV would be ` 1,32,000, being higher of
expected rent of ` 1,20,000 and actual rent of ` 1,32,000. Thereafter,
© The Institute of Chartered Accountants of India
 INCOME FROM HOUSE 4.14
PROPERTY 7
unrealized rent of ` 11,000 and municipal taxes of ` 13,000 would be
deducted from GAV of ` 1,32,000 to arrive at the NAV of
` 1,08,000.

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 4.14 INCOME TAX
8 LAW

(II) LET OUT PROPERTY VACANT FOR PART OF THE YEAR

Particula Amoun
rs t
Computation of GAV
Step Compute ER
1
ER = Higher of MV and FR, but restricted to
SR
Step Compute Actual rent received/ receivable
2
Actual rent received/receivable for let out period
less unrealized rent as per Rule 4 [See Note below
for alternate view]
Step Compare ER and Actual rent received/
3 receivable computed for the let-out period
Step If Actual rent is lower than ER owing to vacancy,
4 then Actual rent is the GAV.
If Actual rent is lower than ER due to other
reasons, then ER is the GAV.
However, in spite of vacancy, if the actual rent is
higher than the ER, then Actual rent is the GAV.

Gross Annual Value (GAV) A

Less: Municipal taxes (paid by the owner during the B
previous year)
Net Annual Value (NAV) = (A-B) C
Less: Deductions under section 24
(a) 30% of NAV D
(b) Interest on borrowed capital (actual
without any ceiling limit) E F
Income from house property (C-F) G
Note - The income-tax returns, however, permit deduction of
unrealized rent from gross annual value. If this view is taken, the
unrealized rent should be deducted only after computing gross annual
value.
ILLUSTRATION 5
Ganesh has a property whose municipal valuation is ` 2,50,000 p.a. The
fair rent is
` 2,00,000 p.a. and the standard rent fixed by the Rent Control Act is `
© The Institute of Chartered Accountants of India
 INCOME FROM HOUSE 4.14
PROPERTY 9
2,10,000 p.a. The property was let out for a rent of ` 20,000 p.m.
However, the tenant vacated the property on 31.1.2022. Unrealised
rent was ` 20,000 and all conditions

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 4.15 INCOME TAX
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prescribed by Rule 4 are satisfied. He paid municipal taxes @8% of

municipal valuation. Interest on borrowed capital was ` 65,000 for the
year. Compute the income from house property of Ganesh for A.Y. 2022-
23.
SOLUTION
Computation of income from house property of Ganesh for A.Y. 2022-
23
Particula Amount in `
rs
Computation of GAV
Step 1 Compute ER
Higher of MV of ` 2,50,000 p.a. & FR of ` 2,10,000
2,00,000 p.a., but restricted to SR of `
2,10,000 p.a.
Step 2 Compute Actual rent received/ receivable
Actual rent received/ receivable for let
out period less unrealized rent as per 1,80,000
Rule 4 =
` 2,00,000 – ` 20,000
Step 3 Compare ER & Actual rent
received/ receivable
Step 4 In this case the actual rent of `
1,80,000 is lower than ER of ` 2,10,000
owing to vacancy, since, had the 1,80,000
property not been vacant the actual
rent would have been ` 2,20,000 (`
1,80,000 + ` 40,000, being notional rent
for February and March 2020). Therefore,
actual
rent is the GAV.
Gross Annual Value (GAV) 1,80,00
0
Less: Municipal taxes (paid by the owner
during the previous year) = 8% of ` 20,000
2,50,000
Net Annual Value (NAV) 1,60,00
0
Less: Deductions under section 24
(a) 30% of NAV = 30% of ` 1,60,000 48,000

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 INCOME FROM HOUSE 4.15
PROPERTY 1
(b) Interest on borrowed capital
(actual without any ceiling limit) 65,000 1,13,000
Income from house property 47,000
Note – Alternatively, if as per income-tax returns, unrealized rent is
deducted from GAV, then GAV would be ` 2,00,000, being the actual
rent, since the actual rent is

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 4.15 INCOME TAX
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lower than the expected rent of ` 2,10,000 owing to vacancy.

Thereafter, unrealized rent of ` 20,000 and municipal taxes of ` 20,000
would be deducted from GAV of
` 2,00,000 to arrive at the NAV of ` 1,60,000.
(III) SELF-OCCUPIED PROPERTIES OR UNOCCUPIED PROPERTIES
Particula Amoun
rs t
Annual value under section 23(2) Nil
Less: Deduction under section 24
Interest on borrowed capital E
(i)
Interest on loan taken for acquisition or
construction of house on or after 1.4.99 and
same was completed within 5 years from the
end of the financial year in which capital was
borrowed, interest paid or payable in toto for
one or two self-occupied properties subject to
a maximum of ` 2,00,000 (including apportioned
pre-construction interest).
(ii) In case of loan for acquisition or construction
taken prior to 1.4.99 or loan taken for repair,
renovation or reconstruction at any point of
time, interest paid or payable in toto for one or
two self-occupied properties subject to a
maximum of ` 30,000.
Income from house property -E
However, aggregate interest on borrowed capital
allowable under (i) and (ii) cannot exceed ` 2,00,000

ILLUSTRATION 6
Poorna has one house property at Indira Nagar in Bangalore. She stays
with her family in the house. The rent of similar property in the
neighbourhood is ` 25,000
p.m. The municipal valuation is ` 2,80,000 p.a.. Municipal taxes paid is `
8,000. The house construction began in April 2015 with a loan of `
20,00,000 taken from SBI Housing Finance Ltd. @9% p.a. on 1.4.2015.
The construction was completed on 30.11.2017. The accumulated interest
up to 31.3.2017 is ` 3,60,000. On 31.3.2022, Poorna paid ` 2,40,000
which included ` 1,80,000 as interest. There was no principal
repayment prior to this date. Compute Poorna’s income from house
property for A.Y. 2022-23.

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 INCOME FROM HOUSE 4.15
PROPERTY 3

SOLUTION
Computation of income from house property of Smt.
Poorna for A.Y. 2022-23
Particula Amount
rs `
Annual Value of house used for self-occupation Nil
under section 23(2)
Less Deduction under section 24
:
Interest on borrowed capital
Interest on loan was taken for construction of
house on or after 1.4.99 and same was completed
within the prescribed time - interest paid or
payable subject to a maximum of ` 2,00,000
(including apportioned pre- construction interest)
will be allowed as deduction.
In this case the total interest is ` 1,80,000 + `
72,000 (Being 1/5th of ` 3,60,000) = ` 2,52,000. 2,00,000
However, the interest deduction is restricted to `
2,00,000.
Loss from house property (2,00,00
0)
(IV) HOUSE PROPERTY LET-OUT FOR PART OF THE YEAR AND
SELF- OCCUPIED FOR PART OF THE YEAR
Particula Amoun
rs t
Computation of GAV
Step Compute ER for the whole year
1
ER = Higher of MV and FR, but restricted to SR
Step Compute Actual rent received/ receivable
2
Actual rent received/ receivable for the period let
out less unrealized rent as per Rule 4 [See Note
below for alternate view]
Step Compare ER for the whole year with the actual
3 rent received/ receivable for the let out period
Step GAV is the higher of ER computed for the whole
4 year
and Actual rent received/ receivable computed for
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 4.15 INCOME TAX
4 LAW
the let-out period
Gross Annual Value (GAV) A
Less: Municipal taxes (paid by the owner during the B
previous year)
Net Annual Value (NAV) = (A-B) C

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 INCOME FROM HOUSE 4.15
PROPERTY 5

Less: Deductions under section 24

(a) 30% of NAV D
(b) Interest on borrowed capital (actual
E F
without
any ceiling limit)
Income from house property (C-F) G
Note - The income-tax returns, however, permit deduction of
unrealized rent from gross annual value. If this view is taken, the
unrealized rent should be deducted only after computing gross annual
value.

ILLUSTRATION 7
Smt. Rajalakshmi owns a house property at Adyar in Chennai. The
municipal value of the property is ` 5,00,000, fair rent is ` 4,20,000 and
standard rent is
` 4,80,000. The property was let-out for ` 50,000 p.m. up to December
2021. Thereafter, the tenant vacated the property and Smt.
Rajalakshmi used the house for self-occupation. Rent for the months of
November and December 2021 could not be realised in spite of the
owner’s efforts. All the conditions prescribed under Rule 4 are satisfied.
She paid municipal taxes @12% during the year. She had paid
interest of ` 25,000 during the year for amount borrowed for repairs
for the house property. Compute her income from house property for
the A.Y. 2022-23.
SOLUTION
Computation of income from house property of Smt. Rajalakshmi for
A.Y. 2022-23
Particula Amount in `
rs
Computation of GAV
Step Compute ER for the whole year
1
ER = Higher of MV of ` 5,00,000 and
FR of 4,80,000
` 4,20,000, but restricted to SR of `
4,80,000
Step Compute Actual rent received/ receivable
2
Actual rent received/receivable for the
period let out less unrealized rent as 3,50,000
per Rule 4 = (` 50,000  9) - (`
© The Institute of Chartered Accountants of India
 4.15 INCOME TAX
6 LAW
50,000  2) = ` 4,50,000 -
` 1,00,000
Step Compare ER for the whole year with the
3 actual rent received/ receivable for the let
out period i.e. ` 4,80,000 and ` 3,50,000

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 INCOME FROM HOUSE 4.15
PROPERTY 7

Step GAV is the higher of ER computed for the

4 whole year and Actual rent received/ 4,80,000
receivable computed for the let-out
period
Gross Annual Value (GAV) 4,80,00
0
Less: Municipal taxes (paid by the owner
during the previous year) = 12% of ` 60,000
5,00,000
Net Annual Value (NAV) 4,20,00
0
Less: Deductions under section 24
(a) 30% of NAV = 30% of ` 4,20,000 1,26,000
(b) Interest on borrowed capital 25,000 1,51,000
Income from house property 2,69,00
0
Note – Alternatively, if as per income-tax returns, unrealized rent is
deducted from GAV, then GAV would be ` 4,80,000, being higher of
expected rent of ` 4,80,000 and actual rent of ` 4,50,000. Thereafter,
unrealized rent of ` 1,00,000 and municipal taxes of ` 60,000 would
be deducted from GAV of ` 4,80,000 to arrive at the NAV of `
3,20,000. The deduction u/s 24(a) would be ` 96,000, being 30% of
` 3,20,000. The income from house property would, therefore, be `
1,99,000.
(V) DEEMED TO BE LET OUT PROPERTY
Particula Amoun
rs t
Gross Annual Value (GAV) A
ER is the GAV of house property
ER = Higher of MV and FR, but restricted to SR
Less Municipal taxes (paid by the owner during the B
: previous year)
Net Annual Value (NAV) = (A-B) C
Less Deductions under section 24
:
(a) 30% of NAV D
(b) Interest on borrowed capital (actual
without any ceiling limit) E F

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 4.15 INCOME TAX
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Income from house property (C-F) G

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 INCOME FROM HOUSE 4.15
PROPERTY 9

ILLUSTRATION 8
Ganesh has three houses, all of which are self-occupied. The particulars of
the houses for the P.Y. 2021-22 are as under:
Particula House I House House
rs II III
Municipal valuation p.a. ` ` `
3,00,000 3,60,000 3,30,000
Fair rent p.a. ` ` `
3,75,000 2,75,000 3,80,000
Standard rent p.a. ` ` `
3,50,000 3,70,000 3,75,000
Date of completion/purchase 31.3.1999 31.3.2002 01.4.2015
Municipal taxes paid during the 12% 8% 6%
year
Interest on money borrowed for - 55,000
repair of property during the
current year
Interest for current year on money 1,75,000
borrowed in April, 2015 for
purchase of property

Compute Ganesh’s income from house property for A.Y.2022-23 and

suggest which houses should be opted by Ganesh to be assessed as self-
occupied so that his tax liability is minimum.

SOLUTION
Let us first calculate the income from each house property assuming that
they are deemed to be let out.
Computation of income from house property of Ganesh for the
A.Y. 2022-23
Particula Amount in `
rs
House I House II House III
Gross Annual Value (GAV)
ER is the GAV of house property
ER = Higher of MV and FR, but 3,50,000 3,60,000 3,75,000
restricted to SR

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 4.16 INCOME TAX
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Less Municipal taxes (paid by the 36,000 28,800 19,800
: owner during the previous
year)

Net Annual Value (NAV) 3,14,000 3,31,20 3,55,200

0

© The Institute of Chartered Accountants of India

 INCOME FROM HOUSE 4.16
PROPERTY 1

Less Deductions under section

: 24
(a) 30% of NAV 94,200 99,360 1,06,560
(b) Interest on borrowed - 55,000 1,75,000
capital
Income from house property 2,19,800 1,76,840 73,640

Ganesh can opt to treat any two of the above house properties as self-
occupied .
OPTION 1 (House I and II– self-occupied and House III – deemed to
be let out)
If House I and II are opted to be self-occupied, the income from house
property shall be –
Particula Amount in
rs
`
House I (Self-occupied) Nil
House II (Self-occupied) (interest deduction (30,000)
restricted to
` 30,000)
House III (Deemed to be let-out) 73,640
Income from house property 43,640

OPTION 2 (House I and III – self-occupied and House II – deemed to

be let out)
If House I and III are opted to be self-occupied, the income from house
property shall be –
Particula Amount in
rs
`
House I (Self-occupied) Nil
House II (Deemed to be let-out) 1,76,840
House III (Self-occupied) (1,75,000)
Income from house property 1,840

OPTION 3 (House II and III – self-occupied and House I – deemed to

be let out)
If House II and III are opted to be self-occupied, the income from house
property shall be –
Particula Amount in
© The Institute of Chartered Accountants of India
 4.16 INCOME TAX
2 LAW
rs `
House I (Deemed to be let-out) 2,19,80
House II (Self-occupied) (interest (30,000 0
deduction restricted to ` 30,000) )

© The Institute of Chartered Accountants of India

 INCOME FROM HOUSE 4.16
PROPERTY 3

House III (Self-occupied) (1,75,000

) (2,00,000
(Total interest deduction restricted to ` )
2,00,000)
Income from house property 19,80
0
Since Option 2 is most beneficial, Ganesh should opt to treat House I and
III as self-occupied and House II as deemed to be let out. His income from
house property would be ` 1,840 for the A.Y. 2022-23.
(VI) HOUSE PROPERTY, A PORTION LET OUT AND A PORTION
SELF- OCCUPIED
ILLUSTRATION 9
Prem owns a house in Madras. During the previous year 2021-22, 2/3rd
portion of the house was self-occupied and 1/3rd portion was let out for
residential purposes at a rent of ` 8,000 p.m. Municipal value of the
property is ` 3,00,000 p.a., fair rent is
` 2,70,000 p.a. and standard rent is ` 3,30,000 p.a. He paid municipal
taxes @10% of municipal value during the year. A loan of ` 25,00,000
was taken by him during the year 2017 for acquiring the property.
Interest on loan paid during the previous year 2021-22 was ` 1,20,000.
Compute Prem’s income from house property for the A.Y. 2022-23.
SOLUTION
There are two units of the house. Unit I with 2/3 rd area is used by Prem for
self- occupation throughout the year and no other benefit is derived
from that unit, hence it will be treated as self-occupied and its annual
value will be Nil. Unit 2 with 1/3rd area is let-out throughout the previous
year and its annual value has to be determined as per section 23(1).
Computation of income from house property of Mr. Prem for A.Y.
2022-23
Particula Amount in `
rs
Unit I (2/3rd area – self-occupied)
Annual Value Nil
Less Deduction under section
: 80,000
24(b) 2/3rd of ` 1,20,000
Income from Unit I (self-occupied) (80,000)

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 4.16 INCOME TAX
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Unit II (1/3rd area – let out)

Computation of GAV
Step I Compute ER
ER = Higher of MV and FR, restricted to SR 1,00,00
However, in this case, SR of ` 1,10,000 0
rd
(1/3 of
` 3,30,000) is more than the higher of
MV of
` 1,00,000 (1/3rd of ` 3,00,000) and
FR of
` 90,000 (1/3rd of ` 2,70,000). Hence the
higher of MV and FR is the ER. In this
case, it is the MV.
Step 2 Compute actual rent received/ receivable
` 8,00012 = ` 96,000 96,000
Step 3 Compare ER and Actual rent
received/ receivable
Step 4 GAV is the higher of ER and actual rent
received/ receivable i.e. higher of ` 1,00,00
1,00,000 and ` 96,000 0

Gross Annual Value(GAV) 1,00,00

0
Less: Municipal taxes paid by the owner
during the previous year relating to let-out
portion
1/3rd of (10% of ` 3,00,000) = ` 10,000
30,000/3 =
`10,000
Net Annual Value(NAV) 90,000
Less: Deductions under section 24
(a) 30% of NAV = 30% of ` 90,000 27,000
(b) Interest paid on borrowed capital
(relating to let out portion)
1/3rd of ` 1,20,000 40,000 67,000

Income from Unit II (let-out) 23,000

Loss under the head “Income from house property” = (`
80,000) +

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 INCOME FROM HOUSE 4.16
PROPERTY 5
` 23,000 = (` 57,000)

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 4.16 INCOME TAX
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2.8 INADMISSIBLE DEDUCTIONS [SECTION 25]

Interest chargeable under this Act which is payable outside India shall not
be deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may be treated as
an agent3.

2.9 PROVISION FOR ARREARS OF RENT AND

UNREALIZED RENT
RECEIVED
SUBSEQUENTLY [SECTION 25A]
(i) As per section 25A(1), the amount of rent received in arrears
from a tenant or
the amount of unrealised rent realised subsequently from a tenant
by an assessee shall be
deemed to be income from house property in 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.
(ii) Section 25A(2) provides a deduction of 30% of arrears of rent or
unrealised rent realised subsequently by the assessee.
(iii) Summary:

Section 25A
Arrears of Rent / Unrealised
Rent
(i) Taxable in the year of receipt/ realisation
(ii) Deduction@30% of rent received/ realised
(iii) Taxable even if assessee is not the owner of the
property in the financial year of receipt/ realisation.

ILLUSTRATION 10
Mr. Anand sold his residential house property in March, 2021.
In June, 2021, he recovered rent of ` 10,000 from Mr. Gaurav, to whom
he had let out his house for two years from April 2015 to March 2017.
He could not realise
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 INCOME FROM HOUSE 4.16
PROPERTY 7
3
under section 163

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 4.16 INCOME TAX
8 LAW

two months rent of ` 20,000 from him and to that extent his actual rent
was reduced while computing income from house property for A.Y.2017-
18.
Further, he had let out his property from April, 2017 to February, 2021
to Mr. Satish. In April, 2019, he had increased the rent from ` 12,000 to
` 15,000 per month and the same was a subject matter of dispute. In
September, 2021, the matter was finally settled and Mr. Anand
received ` 69,000 as arrears of rent for the period April 2019 to
February, 2021.
Would the recovery of unrealised rent and arrears of rent be taxable in
the hands of Mr. Anand, and if so in which year?
SOLUTION
Since the unrealised rent was recovered in the P.Y. 2021-22, the same
would be taxable in the A.Y. 2022-23 under section 25A, irrespective of
the fact that Mr. Anand was not the owner of the house in that year.
Further, the arrears of rent was also received in the P.Y. 2021-22, and
hence the same would be taxable in the
A.Y. 2022-23 under section 25A, even though Mr. Anand was not the
owner of the house in that year. A deduction of 30% of unrealised rent
recovered and arrears of rent would be allowed while computing
income from house property of Mr. Anand for A.Y. 2022-23.
Computation of income from house property of Mr. Anand for A.Y.
2022-23
Particula `
rs
(i) Unrealised rent recovered 10,000
(ii) Arrears of rent received 69,000
79,000
Less: Deduction@30% 23,700
Income from house property 55,300

2.10 TREATMENT OF INCOME FROM CO-

OWNED PROPERTY [SECTION 26]
(i) Where property is owned by two or more persons, whose shares
are definite and ascertainable, then the income from such property
cannot be taxed as income of an AOP.
(ii) The share income of each such co-owner should be determined in
accordance with sections 22 to 25 and included in his individual
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 INCOME FROM HOUSE 4.16
PROPERTY 9
assessment.

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 4.17 INCOME TAX
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(iii) Where the house property owned by co-owners is self occupied by

each of the co-owners,
 the annual value of the property of each co-owner will be Nil and
each co-owner shall be entitled to a deduction of ` 30,000 / `
2,00,000, as the case may be, under section 24(b) on account of
interest on borrowed capital.
 However, the aggregate deduction of interest to each co-owner in
respect of interest payable on loan taken for co-owned house
property and interest, if any, payable on loan taken for another
self-occupied property owned by him cannot exceed ` 30,000/ `
2,00,000, as the case may be.
(iv) Where the house property owned by co-owners is let out,
• the income from such property shall be computed as if the
property is owned by one owner and thereafter
• the income so computed shall be apportioned amongst
each co-owner as per their specific share.
(v) Summary:
Co-owned property
[Section 26]
Self-occupied property Let-out property
The annual value of the property of The income from such
each co-owner will be Nil and each co- property shall be
owner shall be entitled to a computed as if the
deduction of property is owned by one
` 30,000/ ` 2,00,000, as the case owner and thereafter the
may be, on account of interest on income so computed shall
borrowed capital. be apportioned amongst
However, if the co-owner owns each co-owner as per their
another self-occupied / unoccupied specific share.
property, the aggregate interest from
the co-owned property and the other
self-occupied property cannot exceed
` 30,000/
` 2,00,000, as the case may be.
ILLUSTRATION 11
Ms. Aparna co-owns a residential house property in Calcutta along
with her sister Ms. Dimple, where her sister’s family resides. Both of them
have equal share in the property and the same is used by them for self-
occupation. Interest is payable in respect of loan of ` 50,00,000@10%
taken on 1.4.2020 for acquisition of such property. In addition, Ms.
© The Institute of Chartered Accountants of India
 INCOME FROM HOUSE 4.17
PROPERTY 1
Aparna owns a flat in Pune in which she and her parents reside. She has

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 4.17 INCOME TAX
2 LAW
taken a loan of ` 3,00,000@12% on 1.10.2020 for repairs of this flat.
Compute the deduction which would be available to Ms. Aparna
and Ms. Dimple under section 24(b) for A.Y.2022-23.
SOLUTION
Computation of deduction u/s 24(b) available to Ms. Aparna for
A.Y.2022-23
Particula `
rs
I Interest on loan taken for acquisition of residential
house
property at Calcutta
` 50,00,000 x 10% = ` 5,00,000
Ms. Aparna’s share = 50% of ` 5,00,000 = ` 2,50,000
Restricted to ` 2,00,000 2,00,000
II Interest on loan taken for repair of flat at Pune
` 3,00,000 x 12% = ` 36,000
Restricted to ` 30,000 30,000
Total interest 2,30,000
Deduction under section 24(b) in respect of (I) and (II) 2,00,000
above to be restricted to
Computation of deduction u/s 24(b) available to Ms. Dimple for
A.Y.2022-23
Particula `
rs
Interest on loan taken for acquisition of residential house
property at Calcutta
` 50,00,000 x 10% = ` 5,00,000
Ms. Dimple’s share = 50% of ` 5,00,000 = `
2,50,000
Restricted to ` 2,00,000 2,00,000
Deduction under section 24(b) 2,00,000

2.11 DEEMED OWNERSHIP [SECTION 27]

As per section 27, the following persons, though not legal owners of a
property, are deemed to be the owners for the purposes of section 22 to
26.

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 INCOME FROM HOUSE 4.17
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(i) Transfer to a spouse [Section 27(i)] – In case of transfer of

house property by an individual to his or her spouse otherwise than
for adequate consideration, the transferor is deemed to be the
owner of the transferred property.
 Exception – In case of transfer to spouse in connection with an
agreement to live apart,
the transferor will not be deemed to be the owner. The
transferee will be the owner of the house property.
(ii) Transfer to a minor child [Section 27(i)] –
In case of transfer of house property by an individual to his or her
minor child
otherwise than for adequate consideration, the transferor would be
deemed to be owner of the house property transferred.
 Exception – In case of transfer to a minor married daughter,
the transferor is not deemed to be the owner.
 Note - Where cash is transferred to spouse/minor child and
the transferee acquires property out of such cash, then,
the transferor shall not be treated as deemed owner of the property
. However, clubbing provisions will be attracted.
(iii) Holder of an impartible estate [Section 27(ii)] –
The impartible estate is a property which is not legally divisible.
The holder of an impartible estate shall be deemed to be the
individual owner of all properties comprised in the estate.
After enactment of the Hindu Succession Act, 1956, all the
properties comprised in an impartible estate by custom is to be
assessed in the status of a HUF.
However, section 27(ii) will continue to be applicable in relation to
impartible estates by grant or covenant.
(iv) Member of a co-operative society etc. [Section 27(iii)] –
A member of a co-operative society, company or other association of
persons
to whom a building or part thereof is allotted or leased under a
House Building Scheme of a society/ company/ association, shall be
deemed to be
owner of that building or part thereof allotted to him although the co-
operative society/ company/ association is the legal owner of that
building.
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 4.17 INCOME TAX
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(v) Person in possession of a property [Section 27(iiia)] –
A person who is allowed to take or retain the possession of any
building or part thereof
in part performance of a contract of the nature referred to in
section 53A of the Transfer of Property Act shall be the deemed
owner of that house property. This would include cases where the –
(1) possession of property has been handed over to the buyer

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(2) sale consideration has been paid or promised to be paid to

the seller by the buyer
(3) sale deed has not been executed in favour of the buyer,
although
certain other documents like power of attorney/ agreement
to sell/ will etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner
of the property although it is not registered in his name.
(vi) Person having right in a property for a period not less than
12 years [Section 27(iiib)] –
A person who acquires any rights in or with respect to any building
or part thereof,
by virtue of any transaction as is referred to in section 269UA(f) i.e.
transfer by way of lease for not less than 12 years, shall be deemed
to be the owner of that building or part thereof.
Exception – In case the person acquiring any rights by way of
lease from month to month or for a period not exceeding one
year, such person will not be deemed to be the owner.

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LET US
RECAPITULATE
Sectio Conten
n ts
22 Basis of Charge
The annual value of any property comprising of buildings or
lands appurtenant thereto, of which the assessee is the
owner, is chargeable to tax under the head “Income from
house property”.
(i) Property should consist of any buildings or lands
appurtenant thereto
Income from letting out of vacant land is, however,
taxable under the head “Income from other sources” or
“Profits and gains from business or profession”, as the
case may be.
(ii) Assessee must be the owner of the property

(iii) The property may be used for any purpose, but it

should not be used by the owner for the purpose
of any business or profession carried on by him,
the profit of which is chargeable to tax.
Further, the income earned by an assessee engaged in
the business of letting out of properties on rent
would be taxable as business income.

(iv) Property held as stock-in-trade etc.

Annual value of house property will be charged under
the head “Income from house property”, where it is
held by the assessee as stock-in-trade of a business
also.
23(1) Annual Value of let-out property
Annual value is the amount arrived after deducting the
municipal taxes actually paid by the owner during the
previous year from the Gross Annual Value (GAV). The GAV
of Let-out property would be determined in the following
manner:

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Step 1: Compare fair rent with municipal value

whichever is higher

Step 2: Compare step 1 value with standard rent

whichever is lower is the Expected

Rent Compare the Expected rent

determined
Step 3 above with actual rent

Actual rent > Actual rent <

Expected Rent Expected Rent

Actual rent < Actual rent <

Actual rent Expected Expected
Rent is GAV Rent because because of
any
of vacancy other reason

Expected
Rent is
GAV
23(2) Annual Value of self-occupied property
Where the property is self-occupied for own residence or
unoccupied throughout the previous year owing to his
employment, business or profession carried on at any other
place and residing at that other place in a building not
belonging to him, its Annual Value will be Nil, provided no
other benefit is derived by the owner from such property.

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An assessee can claim benefit of Nil Annual Value in

respect of one or two residential house properties self-
occupied by him.
23(4 Annual Value of deemed to be let-out property
) If more than two properties are so self-occupied/unoccupied,
the assessee may claim benefit of Nil annual value in respect
of any two properties at his option. The other property(s)
would be deemed to be let out, in respect of which
Expected Rent would be the GAV.
23(5 Annual value where the property held as stock-in-
) trade etc. Where property consisting of any buildings or
lands appurtenant thereto is held as stock-in-trade and the
whole or any part of the property is not let out during the
whole or any part of the previous
year, the annual value of such property or part of the
property for the period upto 2 years from the end of the
financial year in which certificate of completion of construction
of the property is obtained from the competent authority shall
be taken as “Nil”.
24 Deductions from Annual Value
1. 30% of Annual Value [Section 24(a)]
2. Interest on borrowed capital [Section 24(b)]: Interest
payable on loans borrowed for the purpose of acquisition,
construction, repairs, renewal or reconstruction can be
claimed as deduction.
Pre-construction interest: Interest for the period prior to
the previous year in which property is acquired or construction
is completed.
Pre-construction interest is allowable as deduction in 5 equal
installments from the previous year of completion of
construction or acquisition.
(a) Let out property: Whole of the amount of interest on
borrowed capital payable during the previous year and
apportioned pre- construction interest without any
ceiling limit would be allowed as deduction.
(b) Self-occupied property:
(i) Loan taken on or after 1.4.99: Interest on loan taken
for acquisition or construction of house on or after 1.4.99,
where such construction is completed within 5 years from
the end of the financial year in which capital was
borrowed, aggregate interest paid or payable for one or
two self-occupied properties subject to

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 INCOME FROM HOUSE 4.17
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a maximum of ` 2,00,000 (including apportioned pre-

construction interest).
(ii) Loan taken before 1.4.99: In case of loan for acquisition
or construction taken prior to 1.4.99 or loan taken for
repair, renovation or reconstruction at any point of time,
aggregate interest paid or payable for one or two self-
occupied properties subject to a maximum of ` 30,000
(including apportioned pre- construction interest).
Note - Total amount of interest deduction under (i) and
(i) in respect of one or two self-occupied properties
owned by the
assessee cannot exceed ` 2,00,000.
25 Inadmissible deductions
Interest chargeable under this Act which is payable outside
India shall not be deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may
be treated as an agent

25A Taxability of recovery of unrealised rent & arrears

of rent received
(i) Taxable in the year of receipt/ realisation
(ii) Deduction@30% of rent received/ realised
(iii) Taxable even if assessee is not the owner of the
property in the financial year of receipt/ realization

26 Co-owned property
(i) Self-occupied property: The annual value of the
property of each co-owner will be Nil and each co-owner
shall be entitled to a deduction of ` 30,000 / ` 2,00,000,
as the case may be, on account of interest on borrowed
capital.
However, aggregate deduction of interest to each co-
owner in respect of co-owned self-occupied property and
any other self- occupied house property, if any, cannot
exceed ` 30,000/
` 2,00,000, as the case may be.
(ii) Let-out property: The income from such property shall
be computed as if the property is owned by one owner
and thereafter the income so computed shall be
apportioned amongst each co-owner as per their specific
share.

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 4.18 INCOME TAX
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27 Deemed Ownership: The following persons, though not

legal owners of a property, are deemed to be the owners:
(i) Transferor of the property, where the property is
transferred to the spouse or to minor child except minor
married daughter, without adequate consideration
(ii) Holder of an impartible estate
(iii) Member of a co-operative society etc.
(iv) Person in possession of a property
(v) Person having right in a property for a period not less than
12 years

Other important points

(i) The Actual rent received/receivable should not include any
amount of rent which is not capable of being realized i.e.,
unrealized rent while determining gross annual value in case
let-out property, provided the conditions specified in Rule 4
are satisfied.
Note - The income-tax returns, however, permit deduction
of unrealized rent from gross annual value. If this view is
taken, the unrealized rent should be deducted only after
computing gross annual value.
(ii) If a portion of a property is let-out and a portion is self-
occupied, then, the income will be computed separately for let
out and self occupied portion.

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 INCOME FROM HOUSE 4.18
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TEST YOUR KNOWLEDGE

Question
1
Mr. Raman is a co-owner of a house property along with his brother
holding equal share in the property.
Particula `
rs
Municipal value of the property 1,60,000
Fair rent 1,50,000
Standard rent under the Rent Control Act 1,70,000
Rent received 15,000
p.m.
The loan for the construction of this property is jointly taken and the
interest charged by the bank is ` 25,000, out of which ` 21,000 has
been paid. Interest on the unpaid interest is ` 450. To repay this loan,
Raman and his brother have taken a fresh loan and interest charged on
this loan is ` 5,000.
The municipal taxes of ` 5,100 have been paid by the tenant.
Compute the income from this property chargeable in the hands of Mr.
Raman for the A.Y. 2022-23.
Answer
Computation of income from house property of Mr. Raman for
A.Y. 2022-23
Particula ` `
rs
Gross Annual Value (See Note 1 below) 1,80,00
0
Less: Municipal taxes – paid by the tenant, hence
not deductible Nil
Net Annual Value (NAV) 1,80,00
0
Less: Deductions under section 24
(i) 30% of NAV 54,000
(ii) Interest on housing loan (See Note 2
below)
- Interest on loan taken from bank 25,000

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 4.18 INCOME TAX
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- Interest on fresh loan to repay old loan for
this property 5,000 84,000
Income from house property 96,000
50% share taxable in the hands of Mr. Raman (See
Note 3 below) 48,000

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 INCOME FROM HOUSE 4.18
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Notes:
1. Computation of Gross Annual Value (GAV)
GAV is the higher of Expected rent and actual rent received.
Expected rent is the higher of municipal value and fair rent, but
restricted to standard rent.
Particula ` ` ` `
rs
(a) Municipal value 1,60,00
0
(b) Fair rent 1,50,00
0
(c) Higher of (a) and (b) 1,60,00
0
(d) Standard rent 1,70,00
0
(e) Expected rent [lower of 1,60,00 1,80,00
(c) and (d)] 0 0
(f) Actual rent [` 15,000 x 1,80,00
12] 0
(g) Gross Annual Value
[higher of (e)and (f)]

2. Interest on housing loan is allowable as a deduction under section 24

on accrual basis. Further, interest on fresh loan taken to repay old
loan is also allowable as deduction. However, interest on unpaid
interest is not allowable as deduction under section 24.
3. Section 26 provides that where a house property is owned by two or
more persons whose shares are definite and ascertainable, the share
of each such person in the income of house property, as computed in
accordance with sections 22 to 25, shall be included in his respective
total income. Therefore, 50% of the total income from the house
property is taxable in the hands of Mr. Raman since he is an equal
owner of the property.
Question 2
Mr. X owns one residential house in Mumbai. The house is having two
identical units. First unit of the house is self-occupied by Mr. X and
another unit is rented for
` 8,000 p.m. The rented unit was vacant for 2 months during the year.
The particulars of the house for the previous year 2021-22 are as under:
Standard rent ` 1,62,000 p.a.

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 4.18 INCOME TAX
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Municipal valuation ` 1,90,000 p.a.
Fair rent ` 1,85,000 p. a

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 INCOME FROM HOUSE 4.18
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Municipal tax (Paid by Mr. X) 15% of municipal

valuation
Light and water charges ` 500 p.m.
Interest on borrowed capital ` 1,500 p.m.
Lease money ` 1,200 p.a.
Insurance charges ` 3,000 p.a.
Repairs ` 12,000 p.a.
Compute income from house property of Mr. X for the A.Y. 2022-23.
Answer
Computation of Income from house property for A.Y. 2022-23
Particula ` `
rs
(A) Rented unit (50% of total area – See Note
below)
Step I - Computation of Expected Rent
Municipal valuation (` 1,90,000 x ½) 95,000
Fair rent (` 1,85,000 x ½) 92,500
Standard rent (` 1,62,000 x ½) 81,000
Expected Rent is higher of municipal valuation 81,000
and fair rent, but restricted to standard rent
Step II - Actual Rent
Rent receivable for the whole year (` 8,000 x 96,000
12)
Step III – Computation of Gross Annual
Value
Actual rent received owing to vacancy (` 80,000
96,000 –
` 16,000)
Since, owing to vacancy, the actual rent
received is lower than the Expected Rent, the
actual rent received is the Gross Annual
Value
Gross Annual Value 80,000
Less: Municipal taxes (15% of ` 95,000) 14,250
Net Annual value 65,75

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 4.18 INCOME TAX
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Less : Deductions under section 24 - 0
(i) 30% of net annual value 19,725

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 INCOME FROM HOUSE 4.18
PROPERTY 7

(ii) Interest on borrowed capital (` 750 x 9,000 28,725

12)
Taxable income from let out portion 37,025
(B) Self occupied unit (50% of total area –
See Note below)
Annual value Nil
Less : Deduction under section 24 -
9,000
Interest on borrowed capital (` 750 9,000
x 12)
Loss from self occupied portion (9,000)
Income from house property 28,025

Note: No deduction will be allowed separately for light and water charges,
lease money paid, insurance charges and repairs.
Question 3
Mr. Vikas owns a house property whose Municipal Value, Fair Rent and
Standard Rent are ` 96,000, ` 1,26,000 and ` 1,08,000 (per annum),
respectively.
During the Financial Year 2021-22, one-third of the portion of the house
was let out for residential purpose at a monthly rent of ` 5,000. The
remaining two-third portion was self-occupied by him. Municipal tax @
11 % of municipal value was paid during the year.
The construction of the house began in June, 2014 and was completed
on 31-5-2017. Vikas took a loan of ` 1,00,000 on 1-7-2014 for the
construction of building.
He paid interest on loan @ 12% per annum and every month such
interest was paid.
Compute income from house property of Mr. Vikas for the Assessment Year
2022-23.
Answer
Computation of income from house property of Mr. Vikas
for the A.Y. 2022-23
Particula ` `
rs
Income from house property
I. Self-occupied portion (Two third)
Net Annual value Nil

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 4.18 INCOME TAX
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Less: Deduction under section

24(b)
Interest on loan (See 12,400
Note below) (`
18,600 x 2/3)
Loss from self occupied property (12,400)
II. Let-out portion (One third)
Gross Annual Value
(a) Actual rent received (` 5,000 x ` 60,000
12)
(b) Expected rent ` 36,000
[higher of municipal valuation (i.e.,
` 96,000) and fair rent (i.e., `
1,26,000)
but restricted to standard rent (i.e.,
` 1,08,000)] = ` 1,08,000 x 1/3
Higher of (a) or (b) 60,000
Less: Municipal taxes (` 96,000 x
11% x 1/3) 3,520
Net Annual Value 56,480
Less: Deductions under section 24
(a) 30% of NAV 16,944
(b) Interest on loan (See Note
below) (` 18,600 x 1/3) 6,200 33,336
Income from house property 20,936

Note: Interest on loan taken for construction of building

Interest for the year (1.4.2021 to 31.3.2022) = 12% of ` 1,00,000 = ` 12,000
Pre-construction period interest = 12% of ` 1,00,000 for 33 months (from
1.07.2014
to 31.3.2017) = ` 33,000
Pre-construction period interest to be allowed in 5 equal annual installments
of ` 6,600 from the year of completion of construction i.e. from F.Y. 2017-18
till F.Y. 2021-22.
Therefore, total interest deduction under section 24 = ` 12,000 + ` 6,600 =
` 18,600.
Question 4

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 INCOME FROM HOUSE 4.18
Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and 9
PROPERTY ordinarily
resident in India during the financial year 2021-22. She owns a house
property at Los Angeles,

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U.S.A., which is used as her residence. The annual value of the house is
$ 20,000. The value of one USD ($) may be taken as ` 75.
She took ownership and possession of a flat in Chennai on 1.7.2021,
which is used for self-occupation, while she is in India. The flat was used
by her for 7 months only during the year ended 31.3.2022. The municipal
valuation is ` 3,84,000 p.a. and the fair rent is ` 4,20,000 p.a. She paid
the following to Corporation of Chennai:
Property Tax ` 16,200
Sewerage Tax ` 1,800
She had taken a loan from Standard Chartered Bank in June, 2019 for
purchasing this flat. Interest on loan was as under:

Particula `
rs
Period prior to 1.4.2021 49,200

1.4.2021 to 30.6.2021 50,800

1.7.2021 to 31.3.2022 1,31,300

She had a house property in Bangalore, which was sold in March,

2018. In respect of this house, she received arrears of rent of ` 60,000
in March, 2022. This amount has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini
Ravi for the assessment year 2022-23.
Answer
Since the assessee is a resident and ordinarily resident in India, her global
income would form part of her total income i.e., income earned in India as
well as outside India will form part of her total income.
She possesses a self-occupied house at Los Angeles as well as at Chennai.
She can take the benefit of “Nil” Annual Value in respect of both the
house properties.
As regards the Bangalore house, arrears of rent will be chargeable to
tax as income from house property in the year of receipt under section
25A. It is not essential that the assessee should continue to be the owner.
30% of the arrears of rent shall be allowed as deduction.

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 INCOME FROM HOUSE 4.19
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Accordingly, the income from house property of Mrs. Rohini Ravi for
A.Y.2022-23 will be calculated as under:
Particula ` `
rs
1 Self-occupied house at Los Angeles
.
Annual value Nil
Less: Deduction under section 24 Nil
Chargeable income from this house property Nil
2 Self-occupied house property at Chennai
.
Annual value Nil
Less: Deduction under section 24
Interest on borrowed capital (See 1,91,940
Note below)
(1,91,940)
3 Arrears in respect of Bangalore
. property (Section 25A)

Arrears of rent received 60,00

0
Less: Deduction @ 30% u/s 25A(2) 18,00 42,000
0
Loss under the head "Income from house (1,49,940
property” )
Note: Interest on borrowed capital
Particula `
rs
Interest for the current year (` 50,800 + ` 1,31,300) 1,82,100
Add: 1/5th of pre-construction interest (` 49,200 x 1/5) 9,840
Interest deduction allowable under section 24 1,91,940

Question 5
Two brothers Arun and Bimal are co-owners of a house property with
equal share. The property was constructed during the financial year
1998-1999. The property consists of eight identical units and is situated
at Cochin.
During the financial year 2021-22, each co-owner occupied one unit for
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 4.19 INCOME TAX
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residence and the balance of six units were let out at a rent of `
12,000 per month per unit. The municipal value of the house property
is ` 9,00,000 and the municipal taxes

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are 20% of municipal value, which were paid during the year. The other
expenses were as follows:
`
(i) Repairs 40,000
(ii) Insurance premium (paid) 15,000
(iii) Interest payable on loan taken for construction of house
3,00,000 One of the let out units remained vacant for four
months during the year.
Arun could not occupy his unit for six months as he was transferred to
Chennai. He does not own any other house.
The other income of Mr. Arun and Mr. Bimal are ` 2,90,000 and `
1,80,000, respectively, for the financial year 2021-22.
Compute the income under the head ‘Income from House Property’ and
the total income of two brothers for the assessment year 2022-23.
Answer
Computation of total income for the A.Y. 2022-23
Particula Arun (`) Bimal
rs (`)
Income from house property
I. Self-occupied portion (25%)
Annual value Nil Nil
Less: Deduction under section 24(b)
Interest on loan taken for
construction
` 37,500 (being 25% of ` 1.5 lakh)
restricted to maximum of ` 30,000 for 30,000 30,000
each co-owner since the property was
constructed before 1.04.1999. Hence,
it is assumed that loan was taken
before 1.4.1999
Loss from self occupied property
(30,000) (30,000)
II. Let-out portion (75%) – See Working
Note below
1,25,850 1,25,850
Income from house property
Other 95,850 95,850
Income 2,90,000 1,80,000
3,85,850 2,75,850
Total
Income
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 4.19 INCOME TAX
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Working Note – Computation of Income from Let-Out Portion of

House Property
Particula ` `
rs
Let-out portion (75%)
Gross Annual Value
(a) Municipal value (75% of ` 9 lakh) 6,75,000
(b) Actual rent [(` 12000 x 6 x 12) – (` 12,000 x 1 8,16,000
x 4)]
= ` 8,64,000 - ` 48,000
- whichever is higher 8,16,000
Less: Municipal taxes 75% of ` 1,80,000 (20% 1,35,000
of ` 9 lakh)
Net Annual Value (NAV) 6,81,000
Less: Deduction under section 24
(a) 30% of NAV 2,04,300
(b) Interest on loan taken for the house [75%
of ` 3 lakh] 2,25,000 4,29,300
Income from let-out portion of house 2,51,700
property
Share of each co-owner (50%) 1,25,850

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