House Property Income under Income Tax

Section 22 to 27 of the Income Tax Act deals with various provisions relating to House Property Income & deductions available thereon.

We shall deal with all the sections with explanations hereon one by one.

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What is Income from House Property?

22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

​According to this provision, the annual value of any house property including the land attached therewith will be chargeable to Income tax under the head Income from House Property. However, any building used for business/profession will not be assessed as House property.

​How Annual value of a House Property is determined?

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—

(a) the sum for which the property might reasonably be expected to let from year to year; or

(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Explanation.—For the purposes of clause (b) or clause (c) of this subsection, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made on this behalf, the amount of rent which the owner cannot realize.

(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business, or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,

the annual value of such house or part of the house shall be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if—

(a) the house or part of the house is actually let during the whole or any part of the previous year; or

(b) any other benefit therefrom is derived by the owner.

(4) Where the property referred to in subsection (2) consists of more than 54[two houses]—

(a) the provisions of that sub-section shall apply only in respect of 55[two] of such houses, which the assessee may, at his option, specify in this behalf;

(b) the annual value of the house or houses, 56[other than the house or houses] in respect of which the assessee has exercised an option under clause (a), shall be determined under subsection (1) as if such house or houses had been let.

(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to 57[two years] from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.

​The following points emerge from the above provisions :

​1. The annual value of the property will be the sum that the property is expected to fetch as rent year on year.

2. If there is actual rent that is more than the annual value of the property, then the actual rent will be considered as income from the house property.

3. If the property remains vacant during part of the year then the vacancy allowance will be provided.

4. Any Municipal taxes paid for the property will be deducted from the Annual value subject to the condition that the tax should be paid.

5. If a [person has self-occupied any property for his residence, the same will not be chargeable to tax and also if the person lives in another city due to his employment, then his residence will also not be taxed as income from house property. However, the property should not be let out.

6. If a person has more than two house properties, then the other house properties will be taxed as per their annual value.

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​Deductions from income from house property.

24. Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty percent of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in subsection (2) of section

23, the amount of deduction 58[or, as the case may be, the aggregate of the amount of deduction] shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction 58[or, as the case may be, the aggregate of the amounts of deduction] under this clause shall not exceed two lakh rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal installments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes 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.

Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:

59[Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.]

​

There are some deductions allowed from House property Income :

​1. A standard deduction of 30% is allowed from House Property Income

2. Any interest paid on loan taken from construction, re-construction, repairs, or renovation of the house property will be allowed as a deduction subject to a limit of Rs.2 lacs per annum. However, no deduction is allowed till the house property is fully constructed. Any accumulated interest till the date of construction will be allowed in 5 equal installments starting from the year in which construction has been completed.

​Amounts not deductible from income from house property.

25. Notwithstanding anything contained in section 24, any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head "Income from house property".

​Any Interest paid on a loan taken from outside India is not allowed as a deduction.

​Special provision for arrears of rent and unrealized rent received subsequently.

25A. (1) The amount of arrears of rent received from a tenant or the unrealized rent realized subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realized, and shall be included in the total income of the assessee under the head "Income from house property", whether the assessee is the owner of the property or not in that financial year.

(2) A sum equal to thirty percent of the arrears of rent or the unrealized rent referred to in sub-section (1) shall be allowed as a deduction.

​Any arrear of rent or unrealized rent will be taxed in the year of receipt irrespective of whether the person is the owner of that house property in that year or not.

However standard deduction of 30% will be allowed from that income.

​Property owned by co-owners.

26. Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.

​When any house property is co-owned by two or more owners and their shares are definite, then they will be individually taxed in respect of their share of rent/income and all the deductions will be allowed to them seperately. Thus they will be taxed as AOP only in case their share of property is undefinite and unascertainable.

​"Owner of house property", "annual charge", etc., defined.

27. For the purposes of sections 22 to 26—

(i) An individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

(ii) the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate;

(iii) a member of a cooperative 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, shall be deemed to be the owner of that building or part thereof;

(iiia) a person who is allowed to take or retain 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, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof;

(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;

(vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property.

​When a person transfers any house property to his or her spouse or minor child without proper value i.e. at less than the fair market value, then he will continue to be the owner of that property and any income in respect of that property will be taxed in his or her hands only.

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