Computation of income from house property

COMPUTATION OF INCOME FROM HOUSE PROPERTY

Presentation on computation of income from house property

For students of Income tax Presented by – Dr. Sanjay P Sawant Dessai

Associate Professor VVM’s Shree Damodar College of Commerce

and Economics Margao Goa [email protected]

COMPUTATION OF INCOME FROM HOUSE PROPERTY

• Sections:• Definition of Annual Value u/s. 2(2). • 22 Chargeability • 23 Computation of annual value• 24 Deductions available • 25 deductions not allowed • 25(AA) unrealised rent of previous year 2001-02 (or

subsequent years ) is collected subsequently• 25(B) Mode of taxation of arrears of rent in the year of

receipt • 26 Property owned by co-owners • 27 Deemed owner

11/04/23 [email protected] 2

Annual Value u/s. 2(2)

• Annual value of house property (U/s 23) – It is the annual value of house property which is charged to tax after allowing certain deductions therefore

• Annual value of property consisting of any building or land appurtenant thereto except such property which is used by assessee for the purpose of business and profession.


Section 22 Basis of charge Income is taxable under head “Income from

house property ” if following conditions are satisfied

1.The property should consist of any building or lands appurtenant thereto. (land attached to building )

2.The assessee should be 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 tax .


DETERMINATION OF ANNUAL VALUE

This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year.

It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property

should be equal to the actual rent realized when the property is, in fact, let out.

Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value.

Where, however, the actual rent is less than the reasonable rent, the latter will be the annual value.

The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent Control Act, the rent of similar properties in the same locality, are all pointers to the determination of annual value.


Computation of Gross annual value sec 23 (1)

• Step 1- find out reasonable expected rent of the property

• Step 2-find out actual rent received or receivable after deducting unrealised rent but before deducting loss due to vacancy

• Step 3- find out which one is higher – among computed in step 1 and 2

• Step 4- find out loss because of vacancy • Step 5-step 3 minus step 4 is gross annual value


Computation of gross annual value (illustration)

Municipal value 120000

Fair rent (whichever higher of the MR &FR is reasonable expected rent )

115000 120000

Standard rent ( Reasonable rent cannot exceed SR (wherever rent control Act applicable

125000

Step I Reasonable expected rent (Municipal value or fair rent , whichever is higher, but subject to maximum of standard rent )

120000

Step II Rent received / receivable after deducting unrelised rent of current previous year (132000- 2000)

1,30000

Amount computed in step I and II , whichever is higher 1,30,000

Less, Loss due to vacancy 11000

Gross annual value 11900011/04/23 [email protected] 7

Calculation of gross annual value

A B

Gross annual value

1. Reasonable expected rent (higher of MR/FR not exceeding SR)

A) Municipal valuation

B) Fair rent

C) Standard rent

2. Actual rent ( Annual rent)

Less Unrealised rent

3. Higher of the above (1 &2)

Less loss due to vacancy

Gross annual value


Reasonable expected rent • Reasonable expected rent is deemed to be the sum for

which the property might reasonably be expected to be let out for year to year.

• In determining reasonable rent, several factors have to be taken into consideration, such as

• Location• Annual ratable value fixed by the municipalities• Rent of similar properties in neighborhood,• Rent which property likely to fetch having regard to-• Demand and supply• Cost of construction of the property and• Nature and history of the property

Back11/04/23 [email protected] 9

Reasonable expected rent• In majority cases, reasonable rent can be

determined by taking into consideration the following factors

• Municipal valuation of property • Fair rent of the property The higher of the above is generally taken as

reasonable expected rent Note – If property is covered by rent control Act,

then the amount so computed cannot exceed the standard rent.

Back11/04/23 [email protected] 10

COMPUTATION OF INCOME FROMLET OUT HOUSE PROPERTY

• Income from house property is determined as under:

• Gross Annual Value xxxxxxx• Less: Municipal Taxes xxxxxxx

• Net Annual Value xxxxxxx• Less: Deductions under Section 24• - Statutory Deduction (30% of Net Annual Value) xxx• - Interest on Borrowed Capital xxx

• Income From House Property xxxxxx11/04/23 [email protected] 11

COMPUTATION OF INCOME FROMLET OUT HOUSE PROPERTY (illustration)

Income from house property is determined as under:

Gross Annual Value 2,00,000

Less: Municipal Taxes 25,000

Net Annual Value 1,75,000

Less: Deductions under Section 24

Statutory Deduction (30% of NAV) 52500

Interest on Borrowed Capital 30,000

82,500

Income From House Property 92,500


Deduction under head income from house property ( Let out and deemed to be let out ) Sec 24

1. Sum equal to 30 percent of net annual value 2. Interest on housing loan – if property is

acquired, constructed, repaired with borrowed funds, the amount of interest payable on such borrowings will be allowed as deduction (Deduction is allowed on accrual basis)

3. Pre construction interest – will also be deductible in five equal installments commencing from the previous year in which such property is constructed or acquired


Amount not deductable (u/s 25)

• Deductions in respect of interest on borrowed funds will not be allowed as deductions, if such amount are payable outside India, and no tax has been paid or deducted at source or no person is taxable as agent in India in respect of such amount of interest.


Recovery of unrealized rent of AY 2002-03 and subsequent years

• The amount realized shall be charged to tax as the income of the previous year in which such rent is realized, whether or not the assessee is the owner of that property in the previous year.

• No deductions shall be allowed for such unrealized rent received.


Arrears of rent received (u/s 25 B)• Any amount received by way of arrears of rent

from property, which is not being charged to income tax in any previous year, then the amount so received as arrears of rent, will be charged to income tax as income of the previous year in which such rent is received under head income from house property, whether the assessee is the owner of that property in that year or not.

• However a deduction is allowed in respect of 30 percent of such amount received as arrears of rent.


Property owned by co –owners (u/s 26)

• Where house property is owned by two or more persons and there respective share are defined and ascertainable, such person shall not be assessed in respect of such property as an AOP but the share of each co-owner, in the income of house property, will be included in his total income


Deemed owners • Section 27 provides that following will be

deemed owner of the house property for the purpose of charging tax on Annual Value.

• i) Transfer to spouse or minor child• ii) Holder of impartible estate• iii) Property held by a member of Co-operative

Society• iv) Person who has acquired a property under

Power of attorney transaction• v) Person who has acquired the Right in Property

u/s 269 UA (Property held on lease exceeding 12 years)


Set off and carry forward of loss

• Loss from house property shall be set off against income under the same head or any other heads of income in the same year, Thereafter, if there is a loss remaining unadjusted, such unadjusted loss can be carried forward and set off in subsequent years subject to a limit of 8 assessment years against income from house property.


Income from self occupied house property

• Where property consist of only one house or a part of house which is occupied be the owner for his own residence, the annual of such a house (or a part of house) shall be taken as nil. However, the following two conditions must be satisfied ;

• The property or part thereof is not let out actually during any part of the previous year, and

• No benefit is derived from such property


Deductions available for self occupied house property

Interest on borrowed capital for self occupied property –The deduction in respect of interest on borrowed fund is

Rs 1,50,000Conditions The house property is acquired or constructed with capital

borrowed on or after 1st April 1999The acquisition or construction of the house is completed

within three years from end of the financial year in which capital was borrowed

Loan should be taken for acquisition or construction and not for repairs , renewals, reconstruction etc. ( for repairs, renewals and reconstruction purpose Rs. 30,000 only )


Deemed to be let out house property

• If person has occupied two or more houses for his residential purpose, in that case only one house according to his choice is treated as self – occupied and all other houses will be treaded as deemed to be let out house and all deductions as are applicable to let out property would be allowed.


Set off of loss from self occupied house property

• Loss can be set off against the income of the assessee under the same head of income or any other income of the assessee for the same assessment year


Computation of income from house property

Education

Transcript of Computation of income from house property