Objectives & Agenda : One of the heads of income under the Income Tax Act is Income from House Property. Under this head, incomes earned from house properties are chargeable to tax. The webinar covers the aspects of basis of charging income to tax under this head, nature of house properties taxed under the Act, manner of computing income chargeable to tax under this head, deductions available under this head and eventually judicial precedents pertaining to this head of income.

1. Income from House Property
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
Sundar Rajan S
CA Jugal Gala

3. Legends used in Presentation
Act Income Tax Act, 1961
AO Assessing Officer
AR Actual Rent
AY Assessment Year
COC Certificate of Completion
ER Expected Rent
FR Fair Rent
FY Financial Year
GAV Gross Annual Value
IFHP Income from House Property
IFOS Income from Other Sources
MV Municipal Value
PGBP Profits and Gains from Business or Profession
Rule Income Tax Rules, 1962
SR Standard Rent

4. Presentation Schema
Meaning of
Relevant Terms
Basis of Charge
Computation of
IFHP
Gross Annual Value Illustration
Deductions
Inadmissible
Deduction
Unrealised Rent
and Arrears of Rent
Income from Co-
owned Property
Deemed
Ownership
Composite Rent Caveats
Amendments in
Finance Act, 2019
Judicial Precedents

5. Meaning of Relevant Terms
• It includes any building or land appurtenant thereto
Property / House Property
• It includes residential buildings, office premises, factory buildings,
shops, godowns and other commercial premisesBuilding
• Any piece of land connected with the building e.g. garage, garden, etc.
Land appurtenant
• It is the rent which a similar property in the same locality would fetch
Fair Rent
• It is the value which is adopted by the Municipal Authorities for levying
municipal taxes on the house propertyMunicipal Value
• It is the rent that is fixed by the Rent Control Act, 1948
Standard Rent

6. Contd.
• It is the rent that is outstanding from the tenant
• It shall arise on account of variation in the rental/ lease agreement
Arrears of Rent
• It is the rent which cannot be realised by the owner from the tenant
• It is similar to bad debts arising in case of debtors
Unrealised Rent
• It is a property which is not legally divisible
Impartible estate
• It is the tax levied by the local authority in respect of the house property
• It includes water tax, property tax, fire tax, sewage tax, etc.
Municipal tax
• It is the rent received for the property let out along with other amenities such
as furnished assets, lift services, security services, etc.Composite rent

7. Basis of Charge – Section 22
Property should consist of any building or land appurtenant thereto
Assessee must be the owner of the property
The property should not be held for the purpose of carrying on any business or profession
Property held as stock in trade for a period of more than (2 years)* from the end of the FY in which COC is
obtained from the Competent Authority
* With effect from AY 2020-21. Prior to that, only one year shall be allowed

8. Computation of IFHP
Particulars Amount (INR) Amount (INR)
Gross Annual Value XXX
Less: Municipal taxes paid (XXX)
Net Annual Value XXX
Less: Deductions under section 24:
i. Standard deduction – Sec. 24(a) 30% of NAV (XXX)
ii. Interest on borrowed capital – Sec. 24(b) (XXX)
Income from House Property XXX

9. Types of House Property
House Property
Let out property Self occupied property Deemed let out property
Property given for rent by
the owner to the tenant
Property used by the owner
for own residence
Property owned by the
assessee is deemed to be
given on rent

10. Gross Annual Value – Section 23
• GAV = Higher of ER and AR received/ receivable during the year
• ER = Higher of MV and FR but restricted to SR
Let out throughout the
Previous Year
• GAV = AR for the let out period (if AR < ER owing to vacancy)
• GAV = Higher of ER and AR received/ receivable during the year (in other cases)
Let out - vacant for part of
the year
• GAV = Nil
• No deduction is allowed for municipal taxes paid
Self occupied or
unoccupied
• ER for the whole year is compared with AR for the let out period
• GAV = Higher of ER and AR for the let out period
• Municipal tax for the whole year is allowed as deduction if paid by the owner
Let out for part of the year
and self occupied for part
of the year
Type of House Property Determination of Gross Annual Value (GAV)

11. Contd.
• 2 properties* shall be claimed as self occupied property. Other properties should be
treated as deemed to be let out
• GAV = ER
Deemed let out property
• GAV = Nil if not let out for whole or part of the period
• Benefit is given up to 2 years* from the end of the FY in which the COC is obtained
from the Competent Authority
Held as stock in trade
• Let out portion is computed separately and self occupied portion is computed
separately
• Apportionment of MV, FR, SR and municipal taxes (if not given separately) either on
plinth area or built up floor space or on other reasonable basis
A portion let out and a
portion self occupied
Type of House Property Determination of Gross Annual Value (GAV)
* With effect from AY 2020-21. Prior to that it shall stand as 1 year/ property as the case may be.

12. Illustration
Particulars House-1 House-2
Municipal Value Rs.90,000 Rs.55,000
Fair Rent Rs.75,000 Rs.65,000
Standard Rent Rs.85,000 NA
Actual Rent Rs.80,000
(for 8 months)
Rs.45,000
(for 9 months)
Mr. D owns 2 houses. House-1 remained vacant for 4 months and House-2 was vacant for 3 months. Compute the GAV of both the houses
for the AY 2019-20 with the details provided below.

13. Solution
S. No. Particulars House-1 House-2
1 Higher of MV and FR 90,000 65,000
2 SR 85,000 NA
3 ER (Lower of 1 and 2) 85,000 65,000
4 AR (consider for 12 months) 1,20,000
(80000*12/8)
60,000
(45000*12/9)
5 GAV (Higher of 3 and 4) 1,20,000 65,000
6 Less: Vacancy loss (if AR=GAV) (40,000) [80000*4/8] NA
7 Actual GAV [(5) – (6)] 80,000 65,000
In case of House-1, AR for let out period (Rs. 80,000) is < ER owing to vacancy
Computation of GAV for the AY 2019-20
But, in case of House-2, even if the House had not remained vacant, the AR would have still been < ER (60,000 < 65,000)
Hence, GAV = AR (in case of House-1) and
GAV = Higher of ER and AR for the let out period (in case of House-2)

14. Determination of Net Annual Value
Gross Annual Value
(less unrealised
rent, if any, subject
to Rule 4)
Municipal taxes
paid by the owner
(irrespective of
which year it is
paid)
Net Annual Value

15. Rule 4
Tenancy is bona fide
Defaulting tenant has vacated, or steps have been taken to compel him to vacate the property
Defaulting tenant is not in occupation of any other property of the assessee
Assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies
the AO that legal proceedings would be useless
Unrealised rent shall be reduced from GAV if the following conditions are satisfied

16. Deductions – Section 24
Deductions from Net Annual
Value
Let out and deemed
let out property
Self occupied
property
Standard
deduction@30% -
Sec. 24(a)
Interest on borrowed
capital- fully allowed –
Sec. 24(b)
For repair
renewal or
reconstruction
Acquisition or construction
Interest on borrowed capital -
Sec. 24(b)
Maximum
Rs.30,000 in
aggregate*
Before 01/04/1999 On or after 01/04/1999
Acquisition or construction completed within 5
years from end of FY in which loan borrowed +
certificate from lender specifying interest payable
NO
Maximum of Rs. 2,00,000 in aggregate*
YES
* Aggregate = Consideration of two self-occupied properties (if any) together

17. Interest on Borrowed Capital
Interest on
borrowed capital
Pre-construction
interest
Allowed as deduction over a period of
5 years in equal annual instalments
Post-construction
interest
Interest pertaining to the FY is fully allowed as
deduction until the loan is repaid
Interest under Sec 24(b) allowed as deduction on accrual basis
Interest pertaining to the FY prior to year
of completion of construction or
acquisition of property

18. Inadmissible Deduction – Section 25
Interest which is payable outside India shall not be deducted if,
tax has not been paid or deducted from such interest and
there is no person in India who may be treated as an agent under Section 163

19. Provisions for Arrears of Rent and Unrealised Rent
– Section 25A
Arrears of rent or unrealised rent
Taxable in the year of receipt / realisation
Standard deduction @30% is allowed
Taxable even if the assessee is not the owner

20. Income from Co-owned Property – Section 26
Self – occupied property Let out property
The annual value of the property for each co-owner
is considered as Nil
Treated as one property for computation of IFHP
Each co-owner is entitled to claim deduction on
interest on borrowed capital u/s 24(b)
IFHP is then apportioned on the basis of specific
share of each co-owner
In case of a co-owned property where the share of co-owners are determinate, then income of each co-owner is taxed separately under IFHP
Co-owned property shall mean the property held by two or more persons together on a proportionate share in such property

21. Deemed Ownership – Section 27
Individual who transfers any house property to his or her spouse for an inadequate consideration
Individual who transfers any house property to his/her minor child for an inadequate consideration
Holder of an impartible estate in respect of all the properties comprised in the estate
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 the society, company or association, as the case may be
Person in possession of property under part performance contract referred to in section 53A of the Transfer of Property Act, 1882
(discussed in subsequent slide)
Person having rights (including lease rights) in a property for a period of atleast 12 years as referred to in clause (f) of Section
269UA of the Act
The following persons are considered as deemed owners of the house property and IFHP is computed in the hands of such persons

22. Section 53A of Transfer of Property Act, 1882
The following cases shall be considered as part performance contract under Section 53A of Transfer of Property Act, 1882
Possession of property has been handed over to the buyer
Sale consideration has been paid or promised to be paid to the seller by the buyer
Sale deed has not been executed in favour of the buyer although certain other documents like power of attorney ,
agreement to sell have been executed
In all the above cases, the buyer is deemed to be the owner of the property though the property is not registered in his/ her name

23. Exceptions to Section 27
In case of an individual transferring property to spouse in connection with an agreement to live apart
In case of an individual transferring property to a minor married daughter
In case of person acquiring any rights by way of a lease from month to month or for a period not exceeding
one year

24. Tax Treatment of Composite rent
Manner of splitting of
Composite Rent
If let out building and other assets are inseparable
E.g. Letting of equipped theatre
Entire rental income is taxable
under PGBP or IFOS
If let out building and other assets are separable
E.g. Letting of residential property along with furniture
Income from letting out
building - Taxable as IFHP
Income from letting out of
other assets – Taxable as
PGBP or IFOS

25. Caveats
House property situated in abroad is also taxable subject to the residential status of the person
Income from sub-letting is not taxed under IFHP since the person earning income from such sub-letting is not the
owner of the property
Deduction in respect of repairs, maintenance, insurance, etc. is not allowed since it gets subsumed under the standard
deduction of 30% on Net Annual Value
Interest on loan borrowed to repay the old loan which was borrowed for acquisition/construction/repairs of house
property is also allowed u/s 24(b) of the Act, subject to maximum specified limit
Interest on arrears of interest i.e. unpaid interest is not allowed as deduction

26. Amendments in Finance Act, 2019
The limit of one house to be claimed as self occupied property is now extended to 2 houses
For a property held as stock in trade, annual value is considered as Nil for a period of 2 years from the end of the
FY in which COC is obtained, which was previously one year
Aggregate of the amount of deduction available for self occupied property (whether one or two) shall not exceed
Rs. 30,000 or Rs. 2 lakhs as the case may be

27. Judicial Precedents
Assessee company developed shopping malls and business centres on properties owned by it and let out same by providing
host of services/facilities/amenities in said malls/business centres - income derived therefrom was business income and not
IFHP.
• Deputy Commissioner of Income-tax, Circle-4, Guwahati vs. ATC Realtors (P.) Ltd. -
[2019] 108 taxmann.com 383 (Guwahati - Trib.)
No deduction under section 24 was to be allowed where rental income derived by a charitable trust was computed under
section 11
• Nandlal Tolani Charitable Trust vs. Income-tax Officer (E)-2 (1), Mumbai -
[2019] 105 taxmann.com 232 (Mumbai - Trib.)

28. Contd.
Where assessee let out shops in one building to various tenants and one of said shop was illegally sublet to 'P' bank, in view
of fact that all other tenants were protected under Delhi Rent Control Act, order passed by Rent Control Tribunal in eviction
proceedings directing illegal tenant to deposit certain compensation on monthly basis in Court, could not form basis to make
addition to assessee's rental income in respect of other tenants as well
• Principal Commissioner of Income-tax vs. Seth Properties -
[2019] 103 taxmann.com 190 (Bombay)
Where assessee intended to let out property and took appropriate efforts in letting property, however, due to fall in property
prices failed to let out same year because of which property remained vacant, assessee was entitled to claim benefit under
section 23(1)(c) i.e. vacancy loss arising out of such house property shall be claimed by the assessee
• Ms. Priyananki Singh Sood vs. Assistant Commissioner of Income Tax, Circle 52(1), New Delhi -
[2019] 101 taxmann.com 45 (Delhi - Trib.)

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