M.Com.

-Sem III/2016-17/Direct Taxes

Unit5:INCOMEFROMHOUSEPROPERTY.
BASIS OF CHARGE

1. IncomechargeabletotaxundertheheadincomefromHousePropertyiscomputedonthe
basis of Annual Value of property consisting of building and land attached thereto.
Buildingisanenclosureofthebrickorstoneworkcoveredbyroof.Buildingisanenclosure
whichmayevenconsistofmudwalls.Landattachedtobuildingisthelandoccupiedwith
thebuilding.e.g.approachroad,compound,parkingspace,playgroundetc.
2. Only legal owner of the property is charged to tax under the head income from House
Property.Incomefromsublettingofhousepropertyistaxed,undertheheadIncomefrom
OtherSources.Legalownerincludesdeemedownersaswell.Eg.Ifpropertyistransferred
to spouse without adequate consideration or to a minor child (not being a married
daughter)thentransferorwillbedeemedownerofproperty.
3. Ifpersonistheownerofpropertywhichisusedbyhimforhisbusinessorprofession(&
not for residence) and income of such business or profession is taxable under the head
Profits&GainsfromBusiness,thenAnnualValueofsuchapropertyisnottaxableatall,
undertheheadincomefromhouseproperty.
4. Propertymaybeeitherletoutpropertyorselfoccupiedproperty.However,whenannual
value is to be calculated method of calculating is same in both the cases. However,
method of calculating taxable income is different in case of selfoccupied & let out
properties.

DefinitionofAnnualValue
As per Section 2(2) Annual Value, in relation to any property, means its annual value as
determinedundersection23;
Undersection23AnnualValueisdefinedas:
Forthepurposeofsection22,theannualvalueofanypropertyshalldeemedtobe
(a) thesumforwhichthepropertymightreasonablybeexpectedtoletfromyeartoyear;or
(b) where the property or any part of the property is let and the actual rent received or
receivablebytheownerinrespectthereofisinexcessofthesumreferredtoinclause(a),
theamountsoreceivedorreceivable;or
(c) wherethepropertyoranypartofthepropertyisletandwasvacantduringthewholeor
any part of the previous year and owing to such vacancy the actual rent received or
receivablebytheownerinrespectthereofislessthanthesumreferredtoinclause(a),
theamountsoreceivedorreceivable.

TAXABILITYOFLETOUTPROPERTY

Whetherpropertyisletoutforresidentialorbusinesspurposethereisnodifferenceinfinding
taxableincomeunderthishead.

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M.Com.-Sem III/2016-17/Direct Taxes

Under this head taxable income is always calculated on Gross Annual Value (GAV). Gross
AnnualValueistobecalculatedasfollows:
CalculateReasonableLettingValue(RLV)first.
ReasonableLettingValueshouldbecalculatedasfollows:
1) CompareFairRent&GrossMunicipalValuation.Higherofthetwoshouldbeconsidered.
2) FindoutStandardRent.
ReasonableLettingValuewillbelowerof(1)&(2).

GrossAnnualValuewillbe
1) ReasonableLettingValue(RLV)or
2) ActualRent,whicheverishigher

1. Fair Rent: It is the rent prevailing in that particular locality. It depends upon area of
property,location,etc.Itwillalwaysbegiveninthequestion.Inactualpracticefairrentis
assessedbyincometaxvaluers.

2. MunicipalValuation:Thisisthevaluationcarriedoutbymunicipalauthoritieseveryyear
regarding all properties in their jurisdiction. This valuation is carried out by municipal
authorities to calculate correct amount of property tax, sewage tax, water tax etc.
Municipalvaluationisoftwotypes:
a) GrossMunicipalValuation
b) NetMunicipalValuation

GrossMunicipalValuation 100
()10%ofG.M.V. 10
NetMunicipalValuation 90
(Netrateablevalue)

MunicipaltaxesarerecoveredonNetValuationinMumbai,Kolkata,Delhi,Chennai.
Allremainingareas:MunicipaltaxesarerecoveredonGrossValuation.
e.g. Thane Mumbai
GrossValuation 2,00,000 3,00,000
Municipaltax 10% 10%
Municipaltax 20,000 27,000
ThisclassificationofGross&NetrateablevalueisonlyfromMunicipaltaxespointof
view.
IncometaxrulestakeintoaccountonlyGrossMunicipalValue.

3. StandardRent:StandardRentistherentfixedbygovernmentasperrentcontrolact.

HowtoCalculateGAVwhenpropertyissubjecttovacancy?
Step1:CalculateRLVasusual

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M.Com.-Sem III/2016-17/Direct Taxes

Step2:1)EvenafterexcludingRentforvacancyperiodifactualrentismorethenRLV,then
actualrentwillbeGrossAnnualValue.
2)IfactualrentexcludingrentforvacancyperiodislessthanRLVonlybecauseof
vacancythanActualRentwillbeGAVorelseRLVwillbeGAV.

HowToCalculateGrossAnnualValueifthereisanyunrealisedrent?
Step1:CalculateRLVasusual
Step2:CalculateActualRentunrealisedRent
GAVwillbehigheroftheamountinstep1&step2.

HowtoCalculateGrossAnnualValueifthereisvacancyaswellasunrealisedrent?
Step1:CalculateRLVasusual.
Step2:CalculateActualRentUnrealisedRent.
(for12monthswithoutvacancy)
Step3:TakehigheroftheamountcalculatedinStep1&Step2andfromthatdeduct
ActualRentforVacancyPeriod.

PROBLEMS

CalculateGrossAnnualValueincaseofthefollowing:
I II III IV
1.FairRent 85,000 20,000 25,000 20,000
GrossMunicipalValuation 95,000 18,000 28,000 20,000
ActualRent 90,000 18,000 30,000 24,000
CalculateGrossAnnualValue

A B C D
2.FairRent 1,00,000 90,00045,00080,000
GrossMunicipalValuation 90,0001,00,0001,20,00080,000
ActualRentpermonth 5,0009,00012,0006,000
UnrealisedRent 10,0005,00015,0002,000

3. (` inthousands)
Particulars X Y
MunicipalValue 60 60
Fairrent 68 68
Actualrent(p.a.) 66 66
Unrealisedrentofthepreviousyear201516whichcouldnotbe
realisedandconditionsofrule4aresatisfied 2 6

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M.Com.-Sem III/2016-17/Direct Taxes

4. (` inthousands)
Particulars X Y Z A
Municipalvalue(perannum) 60 61 60 80
Fairrent(perannum) 65 66 64.5 78
Actualrent(perannum) 72 57 72 72
Propertyremainsvacant(innumberofmonth) 1 11/2 5 3

5. (` in000)
Particulars X Y A B
MunicipalValue 140 140 140 140
Fairrent 145 145 145 145
Actualrentifpropertyisletout
throughoutthepreviousyear201516 168 168 168 180
Unrealisedrentofthepreviousyear20152016 14 42 70 105
Periodwhenthepropertyremainsvacant 1 1 3 4
(innumberofmonths)

Deductions under Section 23 and 24 in case of Let Out Property

Deduction under Sec.23 : Municipal taxes or local taxes.

1. Amount paid during the year is allowed as deduction.
2. Amount paid by the owner is allowed as deduction.
3. Amount paid by the tenant is not allowed.
4. If local taxes are outstanding at the end of the year then deduction for outstanding
amount is not allowed, but when the same outstanding amount is paid in the next year
one can claim deduction in the next year on payment basis.
5. This deduction is allowed on payment basis and not on accrual basis.

PROBLEMS

1. Municipaltaxesfortheyear `20,000outofwhichhalftheamountistobebornebythe
tenant.Ownerhaspaidonly `8,000.Interestonloan`40,000.CalculateMunicipaltaxes
allowableasdeduction.

2.Grossannualvalue `2,00,000.Municipaltaxes `40,000.Ownersshare75%outofwhich

1/3isstillunpaid.CalculateMunicipaltaxesallowableasdeduction.

3.FindoutNetAnnualValueforthefollowingletoutpropertyforA.Y.20162017.
(a) Propertyconsistsof2residentialunits.
(b) Actualrent`2,000permonthperunit.

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M.Com.-Sem III/2016-17/Direct Taxes

(c) Fairrent`1,500permonthperunit.
(d) MunicipalRateableValue`40,000total.
(e) Localtaxeschargedat4%.

4.Mr.Xistheownerofhousepropertyconstructionofwhichstartedon17thJune2003and
completed on 31st March 2005. This property consists of 5 residential units and 2
commercialunits. All of them were let out at a rent of ` 2,000 per month per residential
unit& `4,000permonthpercommercialunit.Itsmunicipalrateablevaluewas `2,70,000
Net,whereasFairValuewas`2,90,000.
Detailsofmunicipaltaxes:
Totaltax10%.50%ofwhichbornebytenantsand20%ofOwnersshareisstilloutstanding.
FindoutNetannualvalueforA.Y.20162017.

5.Mr.Xistheownerofhousepropertyconsistingof10residentialunits.Alltheflatswerelet
outfrom1stJune2010atamonthlyrentof`100perflat.Itsmunicipalrateablevaluewas`
20,000 whereas fair rent was ` 21,000. Municipal tax was fully paid by owner which was
10%.FindoutnetannualvalueforA.Y.20162017.

6. Residentialpropertyconsistingof2flats.Bothwereletoutatmonthlyrentof `2,000each
from1stApril2015.Fairrent `30,000.Municipalvalue25,000.Municipaltax10%,paidby
theownertotheextentof25%.FindoutNetAnnualvalueforA.Y.20162017

DeductionsunderSection24
1.Repairs:
Thisdeductionisallowedattherateof30%onNetannualValue.Actualamountincurredby
ownertowardsrepairsandmaintenanceandcollectionofrentarenottakenintoaccount.This
deductionisfixedandwillbeallowedevenifactualexpenditureonrepairsisNil.

2.InterestonLoan:
Interestonloantakenonlyfromapprovedfinancialinstitutionsiseligible.
Loanmusthavebeentakenforpurchase,repairsorconstructionofHouse.Ifloanistakenfor
anyotherpurposethendeductionisnotallowed.Deductionisallowedonaccrualbasis.
Outstandinginterestwhenpaidinthenextyearisnoteligiblefordeductioninthenextyear
if it was claimed on accrual basis earlier. In short, for a particular amount deduction can be
claimed only once. Interest paid on borrowed funds during construction period or before
acquisition ofthepropertyisallowedasdeductionin 5equalinstalmentscommencingfrom
thepreviousyearinwhichpropertywasconstructedoracquired.Preconstructionperiodstarts
fromthedateofobtainingofloan&itendson31stMarchofthepreviousyearprecedingthe
yearinwhichpropertyisacquiredordateofrepaymentofloanwhicheverisearlier.

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M.Com.-Sem III/2016-17/Direct Taxes

LoanobtainedfromoutsideIndia
IfinterestonloanispaidoutofIndiaitistheresponsibilityofpayertodeducttax&deposititin
thegovernmenttreasuryandremitonlyremainingamounttolender.Ifhefailstodeducttax
thendeductionforInterestisnotallowedaspertheprovisionsofsection25.

TAXABILITYOFSELFOCCUPIEDPROPERTY
If house property is occupied by the owner himself, income of such a property is to be
computedinthefollowingmanner:
1. When assessee is the owner of only one self occupied property: In such a case annual
valueofsuchpropertyistakenasnilandnodeductionisallowedonitexceptintereston
borrowedfundsu/s24(b)forthepurposeofpurchase,construction,repairs,renovationof
such a property. However, this deduction is subject to a ceiling of maximum of ` 30,000.
However,ifpropertyisacquiredorconstructedwithcapitalborrowedonorafter1stApril
1999andsuchacquisitionorconstructioniscompletedwithin3yearsfromtheendofthe
financial year in which capital was borrowed, then deduction on this account will be
alloweduptomaximumof`2,00,000.
Interestonloanforselfoccupiedhouseproperty

Loanobtainedbefore1499 Loanobtainedonorafter1499

Maximumdeduction`30,000
Utilisedforpurchase/ Utilisedfor
Constructionof repairsof
newhouse existinghouse

Maximumdeduction Maximum
`2,00,000 deduction
`30,000
Thus,inthiscase,ifatallanyincomeiscomputedforpropertyitwillbeanegativeincome,
i.e.losswhichcanbeadjustedagainstanyotherincomeforthesameyear.
If,assesseeistheownerofonlyonehousepropertywhichwasnotletout,butcouldnotbe
selfoccupied also, because of his employment outside & at the place of employment he is
staying in a rented house, property of which he is the owner will be treated as if it is self
occupied.i.e.itsannualvaluewillbetakentobeNil.

2. Whenassesseeisownerofmorethanoneselfoccupiedhouses:Inthiscase,onlyone
houseaccordingtothechoiceoftheassesseewillbetreatedasselfoccupiedi.e.itsannual
valuewillbetakenasNilandremaininghouseshallbetreatedasdeemedtobeletoutand
accordinglyincomewillbecomputedforthat.
It is in the interest of the assessee to treat that house as selfoccupied of which Net
annual value is more. Wherever house is treated as deemed to be letout, all applicable
deductionswillbeallowedwhichareavailabletoletoutproperty.

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M.Com.-Sem III/2016-17/Direct Taxes

3. When the property is let out for some period & Self occupied for some period: In this
case,computationshouldbemadeasifpropertyisletout.However,whilecalculatingGAV,
Actual Rent should not be considered for 12 months but only for the period for which
propertywasletout.Nootherbenefitofvacancyhoweverisallowed.

PROBLEMS

1.FindouttheGAVincaseofthefollowing:
a] FairRent`36,000p.a.
b] Municipalvalue`24,000p.a.
c] ActualRent`2,500p.m.
d] Propertyletoutupto31stJan.2016&thenselfoccupied.

2. FindoutGAVbasedoninformationinproblem1
a] IfActualRentwas`4,000p.m.

TAXATIONOFRENTARREARS

Anyarrearsofrent,whichwerenottaxedu/s23,receivedinasubsequentyear,shallbe
taxableasincomefromhousepropertyintheyearofreceipt,afterallowingadeductionof30%
of such amount towards repairs and collection charges. The amount shall be taxable
irrespective of whether the property is owned by the assessee in the year of receipt or not.
(Sec.25B).

TAXATIONOFUNREALISEDRENTALLOWEDASDEDUCTION
UPTOA.Y.200102&RECOVEREDLATER

Wheredeductionwasallowedinrespectofunrealisedrentfromtheannualvalueand
subsequently during any accounting year the assessee has realised any amount in respect of
such rent, the amount so realised will be deemed as income under the head Income from
House Property and will be charged to tax without making any deduction u/s 23 & 24,
irrespectiveofwhethertheassesseeistheownerofthatpropertyinthatyearornot.(Sec.25
AA)
However,ifassesseewasdisallowedanypartofunrealisedrentinearlieryearincome
chargeableinthecurrentyearshouldbecalculatedafterdeductingtheamountofunrealised
rentnotallowedasdeduction.

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M.Com.-Sem III/2016-17/Direct Taxes

TAXATIONOFUNREALISEDRENTOFA.Y.200203(ORSUBSEQUENTYEAR)&RECOVERED
LATER

In this case, such recovery to the extent it was not included in annual value earlier shall be
deemedtobeincomechargeableundertheheadIncomefromhousepropertywhetherornot
assesseeistheownerofthatpropertyintheyearofrecovery.

PROPERTYOWNEDBYCOOWNERS

Under Section 26, income of the property where there is a coownership shall be computed
firstasifpropertyisownedbyoneperson&thenitwillbedistributedamongcoownersasper
theiragreedproportion.i.e.Eachcoownershallincludehisshareinhistotalincome.
SETOFF&CARRYFORWARDOFLOSS

If income under the head Income from House Property results into loss such loss shall be
adjusted against income from any other head in the same year. If any part of loss remains
unadjusted even after this, it can be carried forward and set off in subsequent years against
incomefromhousepropertysubjecttoalimitof8assessmentyears(Section71B).

PROBLEMS

1. Mr.Rameshhasletoutthehousepropertyfor`75,000/MunicipalValuationofthehouse
is `60,000whereasfairrentofthepropertyis `60,000/Mr.Rameshhadborrowedof `
50,000/@15%on1stApril2015forthepurposeofhisdaughtersmarriage.Followingare
theexpensesincurredbyhimduringF.Y.20152016.
MunicipalTaxes 20%ofMunicipalValuation
Repairs 7,500
AnnualCharge 1,700
LandRevenue(outstanding) 500
Insurance 650
Collectioncharges 150
Annual charge of ` 1,700/ is payable by Mr. Ramesh to his mother as per will of his
father.
ComputethetaxableincomefortheAssessmentyear20162017.

2. ShriKailashownsahousepropertyknownasGokulDhamsituatedatGandhidham,Gujarat.
Municipal rateable value of the house is ` 3,000/. Municipal taxes are 30% of Municipal
rateable value. During the previous year he could not occupy this house because of his
employmentinMumbai.Houseremainedvacantandnootherbenefitisderivedfromthis
house.Hepaidinterestof `35,000toHDFConloanborrowedforthepurposeofacquiring
thishouse.HeisemployedwithM/sExactEnterprisesonamonthlysalaryof`7,500/.
Youarerequiredtocomputehistaxableincomeforassessmentyear20162017assuming:

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M.Com.-Sem III/2016-17/Direct Taxes

(a) That the H.D.F.C. Loan taken and acquisition of House property was prior to 1st
April,1999
(b) ThattheH.D.F.C.LoantakenandacquisitionofHousepropertywason1stApril,1999.

3. ShriBholaownstwohousepropertiesinMumbaiofwhichheusessecondpropertyforhis
personaluse.Histotalincomefromsourcesotherthanpropertyis `30,000.Thefollowing
aretheparticularsinrespectoftheproperties:
BuildingNo.1 BuildingNo.2
Yearofconstruction 1977 1999
MunicipalRateablevalue 36,000 16,000
RentReceived(for10months) 52,000 Selfoccupied
LocalTaxes 4,000 4,000
ActualRepairs 2,000 200
GroundRent 400
FireInsurancePremium Nil 300
Vacancy 2months N.A.
Collectioncharges 3,000 Nil
ComputethetotalincomeofShriBholafortheassessmentyear20162017.Also
computehistotalincomeifmunicipalvalueofBuildingNo.1isa)`60,000b)`70,000

4. Mr. Sanjay owns a house property at Delhi. Following details are available regarding this
property:
(a) ActualRentreceivedperannumfromthetenants 17,000
(b) Municipaltaxesperannum 4,600
(c) Municipalrateablevalue 20,000
(d) Legalexpensesincurredinrespectoftakinglegalproceedings
againstonetenantforrecoveryofrent. 1,250
(e) Bankcommissiononrealisationofoutstationcheque 115
(f) Conveyancecharges,typingchargesincurredinconnection
withcollectionofrent 1,210
(g) AmountofLandrevenueactuallypaidotherthanprevious
year. 250
(h) Commissionpaidtoabrokerforarrangingtheloanfor
purchaseoftheabovehouseproperty 2,340
(i) Insurancepremiumpaidtoinsurethelossofrent 850
(j) Unrealisedrent(conditionsfulfilled) 2,000
YouarerequiredtocomputetheincomefromHouseProperty,fromtheaboveinformation.

5.Rajaniowns2housesinDelhi.ThehouseNo.1isselfoccupiedwithotherfour(4)coowners
whereasthehouseNo.2ofwhichsheistheonlyownerisletoutat`3,200/p.m.
Computeherincomefromhousepropertywiththehelpoffollowingfurtherinformation
fortheassessmentyear201617.

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M.Com.-Sem III/2016-17/Direct Taxes

HouseNo.1 HouseNo.2
` `
Fairrent 60,000 38,000
MunicipalRateableValue(Net) 50,000 36,000
FireinsurancePremium 3,500 6,000
UnrealisedRent(conditionsfulfilled) 1,000
Expenditureonrepairs 425 1,000
MunicipalTax 1,100 10%
Interestonloan(forboth,acquiredbefore1.4.99) 12,000 40,000
Duringthepreviousyear20152016RajanicouldnotoccupyhouseNo.1for3monthsdue
toheroverseasvisit.

6.Mr.SushilistheowneroftwohousepropertiesnamelyShantiNiketanatNasik&Shanti
DhamatNagpur.HefurnishesyouthefollowinginformationfortheP.Y.20152016:
ShantiNiketan ShantiDham
atNasik atNagpur
` `
MunicipalValuation 39,000 31,000
MunicipalTaxespaid 7,835 4,440
FairRentalvalue 45,000 39,000
FireInsurance 900 800
GroundRent 567 440
Interestonloantakenforconstructionpriorto 35,000 32,000
1.4.1999
AdviceMr.SushiltakingintoconsiderationtheprovisionsofIncomeTaxAct,andcompute
thetaxableincomeundertheheadIncomefromHouseProperty.

7. Mr.MangeshistheownerofahousepropertyinNagpur.Ithasbeenletoutfor `90,000
Composite Rent. The tax payable by the owner comes to ` 10,000 but the landlord has
takenanagreementfromthetenantstatingthatthetenantwouldpaytaxdirectlytothe
Municipal Authorities. The landlord, however, bears the following expenses on tenants
amenities:
`
WaterCharges 1,000
LiftMaintenance 1,000
SalaryofGardner 1,200
LightingofStairs 800
Thelandlordclaimsthefollowingdeductions:
Repairs 30,000
LandRevenue 1,000
Collectioncharges 2,000
Legal expenses incurred on purchase of land on which house property is situated `
24,000.
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M.Com.-Sem III/2016-17/Direct Taxes

Computetaxableincomefromhouseproperty

8. Mr.Gharwalaistheownerofvarioushouseproperties.Thedetailsofwhichforthe
previousyear201516isasfollows:
a) PropertyIisletoutonamonthlyrentof`7,500.Thefairrentofthepropertyis`8,500
p.m.andmunicipalvaluationis `80,000.MunicipalTaxpaidamounted `8,000p.a.out
ofwhich50%ofthetaxisbornebytenant.Thehouseremainedvacantfor2months
duringtheyear.Mr.Gharwalahadtakenloanforconstructionofthispropertyonwhich
interestpaidamountedto`35,000.
b) PropertyIIisoccupiedbyhimselfforhisownresidence.Themunicipalvaluationofthe
propertyis`1,20,000andFairRent`15,000p.m.TheMunicipaltaxesof`12,000were
paidbyhimon29thMarch2015.Hehadconstructedthispropertyafter1stApril2008.
TheConstructionstartedon142008andwascompletedon31stMarch2009.Loanof`
2,00,000@12%p.a.wastakenon1stApril2008andisstilloutstanding.Interestispaid
regularly.
c) PropertyIIIwasinheritedbyhimfromhisfatherwhichisalsokeptbyhimforhisown
residence. The Municipal valuation of the property is ` 46,000 and Fair Rent ` 48,000
Mr. Gharwala paid municipal taxes of ` 4,600 on 10th April 2015 for above house
property.Heagreedtopay `1,200p.a.asannualchargetohissister.Interestonloan
for this house property paid was ` 6,000 to Mr. Ponting of Australia without any TDS
andthereisnoagentofMr.PontinginIndiaforthepurposeofIncometax.
d) He also owns an open plot of land which was given on rent during the year for rent of `
20,000.
e) Hehadtakenaroomonrentforhisofficeworkattherentof `1,500p.m.However,
insteadofhimselfusingtheroomhesubletthisroomtoanotherpersonattherateof`
2,000p.m.duringthewholeofPreviousYear201516.
ComputehisGrossTotalIncomefortheAssessmentYear201617.

9. Mr.GovindaandhisfivebrothersbecameownerofthehousePushpakafterthedeathof
theirfatheron2232012.Asperthewilloftheirfathereachbrotherisrequiredtopay `
20,000/inlumpsumtotheirsisterMrs.Anjaliasagainstthishouse&thesesixbrothersto
sharethebenefitsofthishouseequally.Followingadditionalinformationisprovided:
Rentreceived `94,000
MunicipalValuation `80,000
FairRentalvalue ` 1,05,000
Repairs `17,840
Insurance `4,200
Municipaltaxes `21,000
GroundRent `3,000
ComputethetaxableincomeofMr.Govindafortheassessmentyear20162017underthe
headincomefromhouseproperty.

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