Income from House Property in India

Is Income from House Property in India taxable?

Any receipt shall be chargeable to tax under the head House Property if the following conditions are satisfied:

  • there should be a building or land appurenant thereto
  • the assessee should be the owner
  • the building should not be used by the owner for his own business or profession

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Tax Treatment for a property which is Let Out

Gross Annual Value

Higher of the following:

  • Actual Rent
    • Actual Rent Received shall be after deduction of unrealised rent(bad debts) of the previous year, if conditions of Rule 4 are satisfied.
  • Fair Rent / Normal Rent / Market Value / Rent of similar house in the same locality
  • Municipal Rateable Value
    • When municipal rateable value is Net find out the Grss and then find out the Gross Annual Value. Gross = (Net x 100)/90

Municipal Taxes / Property tax / Local Tax

Municipal Taxes shall be allowed as a deduction if the following conditions are satisfied:

  • They are borne by the owner
  • They are actually paid during the previous year

Net Annual Value

  • Gross Annual Value – Municipal Tax

Standard Deduction

  • 30% of the Net Annual Value

Interest

  • Any interest on funds borrowed for the purpose of purchase / construction / reconstruction / repairs / renewal etc. of the house property whether PAID OR NOT shall be allowed as a deduction.

Misc. Expenditures Incurred

  • Eg: Rent / Rates / Taxes / Charges etc. are to be ignored in any condition whatsoever.

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Tax Treatment for a property which is Self-Occupied

When the owner uses ONE house for his own residential purposes.

Gross Annual Value

  • GAV for Self Occupied house is NIL

Interest

  • If the amount is borrowed before 1/4/99
    • amount of deduction shall be amount of interest or Rs. 30,000 whichever is less
  • If the amount is borrowed on or after 1/4/99
    • amount of deduction shall be amount of interest or Rs. 1,50,000 whichever is less

Pre-Construction Period Interest

Pre Construction period: Period commencing from the date of borrowing of the loan and ending on the 31st March immediately prior to the date of completion of consturction or repayment of loan, whichever is earlier.

  • It shall be allowed as a deduction in 5 equal installments from the year in which the house is constructed.

Any interest payable outside India shall not be allowed as a deduction if:

  • No Tax has been deducted at source
  • There is no agent of the recepient who can be held responsible for payment of tax
  • The recepient is not assessed to tax in India

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If a House is Self-Occupied for part of the year and Let Out for the rest of the year:

When a House is Self-Occupied for part of the year and Let Out for the rest of the year, income will be computed as if the property is let out. Actual Rent will be for the period let out.

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If a person has 2 or more self-occupied houses:

  • Compute the Income from all the houses that are self occupied, as if they are let out
  • The house with Maximum Income shall be trated as self-occupied.
  • Other houses shall be deemed to be let out.
  • Recompute the income of the self occupied house.

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How is Unrealised Rent which has been recovered treated?

  • If it was earlier allowed as a deduction
    • Amount received will be included as income from house property and no deduction allowed since it has already been allowed earlier.
  • If earlier it was NOT allowed as a deduction
    • Ignore it, since it is not to be included anyway.

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Arrears of rent now received from tenant

  • The amount received shall be treated as income of the year in which the amount is received.
  • Standard Deduction of 30% is allowed since it is considered as Actual rent recd.

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Is rent received from a plot of land considered as Income from House Property?

No. It is considered as Income from Other Sources

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Is rent received from a plot of land attatched to a building considered as Income from House Property?

Yes. There is a building appurenant thereto.

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Is rent received from subletting a property considered as Income from House Property?

No. It is considered as Income from Other Sources.

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If the property is vacant?

  1. Find out the higher of the Municipal Rateable Value and Fair Rent
  2. Find out the actual rent received for the period which it was let out.
  3. Find out the Annual Rent (for 12 months)

If 3 is greater than or equal to 1 then GAV = 2

If 3 is less than 1 then GAV = 1 + 2 – 3

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