What is house property? House property means any building of which the assessee is the owner. Ownership of the building is must in case of calculation of income from house property.

Notes:

  • Income from sub-letting of the house property is taxable under the head “Income from other sources”.
  • If rent of furniture is received along with the house rent, the rent from furniture will be treated as “Income from other sources” not as income from house property.

Meaning of Annual Value:-  annual value of house property means the sum which might reasonably be expected to fetch if the property is let from year to year.

Incomes not to be treated as income from house property: Following are some incomes which are not the part of income from house property:-

  1. House property used for business purpose.
  2. Rent received from vacant land.
  3. Income from house property in the immediate vicinity of agricultural land and is used as a store house or dwelling house etc. by the cultivators.

Incomes to be treated as income from house property:- Followings are some incomes which are to included in the income from house property:-

  1. Rental Income from any farm house or agriculture land for any purpose other than agriculture.
  2. Any arrears of rent, which has not been taxed, received in subsequent year, shall be taxable as income from house property in the year of receipt.
  3. Any unrealized rent received in subsequent year, will be added in rental income without any deduction.

DEDUCTIONS ALLOWED FROM INCOME FROM HOUSE PROPERTY

Following deduction are allowed against the income from house property:-

    1. Standard Deductions:- Repair & collection charges 30% of the net annual value shall be allowed. (Net Annual Value means Rent received minus Property tax paid).
    2. Interest on borrowed capital:- (On accrual basis)Interest on borrowed capital will be allowed without any limit after the completion of construction. If interest is paid prior to construction or acquiring the property, will be deducted in 5 installments commencing from the previous year in which the house was acquired or constructed.
    3. If fresh loan has been raised to repay the original loan, the interest paid on the second loan, would also be allowed.

AMOUNTS NOT TO BE DEDUCTED FROM INCOME FROM HOUSE PROPERTY

  1. Any interest paid out of India against which no tax has been deducted at source.
  2. Interest payable on interest, will not be allowed.
  3. Any brokerage, commission paid to arrange a loan, will not be allowed.
  4. Electricity exp., water exp., salary of lift man or watchman, Ground rent, Insurance premium etc. will not be deducted as expenditure against income from house property.

 HOW TO CALCULATE THE INCOME FROM HOUSE PROPERTY

Rental income received or receivable during the year

Less: House Tax/Local tax paid such as municipal tax, water and sewage tax, fire tax etc. (on actual payment basis only).

Net Annul Value

Less: 30% standard deductions for repair etc of net annual value

Less: Interest on borrowed capital

Net income from house property

 HOW TO CALCULATE THE INCOME OF SELF OCCUPIED PROPERTY

  •  No deduction is allowed for repair and collection % and house tax since the value is being taken as NIL.
  • If any interest is paid on loan before 01.04.1999, maximum amount up to Rs.30000/= is allowed as deduction.
  • If the loan is taken after 01.04.1999, and house is self occupied only, the interest up to Rs.150000/= will be allowed. It can be adjusted against income from other property or even from other income. With effect from Financial Year 2014-15, the interest limit for self occupied house is increased from Rs.1,50,000/= to Rs.2,00,000/=.
  • If the house is partly let out, interest can be adjusted up to any limit.
  • Repayment of Principal loan can be claimed u/s 80-C (Over all limit of deduction u/s 80-C is Rs.1,50,000/=)

Set off loss from House Property

  • Any loss under income from house property can be set off against the income under any other house property.
  • Any loss under income from house property can be set off against the income under any other head.
  • Any loss under the head income from house property, which can not be and is not wholly set off against income under any other head, may be carried forward for eight years to be set off against income from house property in those years.

Illustration-1:

Mr. X has got the following details in respect of income from house property during financial 2016-17 (Assessment Year 2017-18):-

Rent received Rs.240000/=

Property tax paid Rs.25000/=

Insurance of building Rs.5000/=

Interest paid on borrowed capital Rs.60000/=

Calculate the income from house property?

Solution:

COMPUTATION OF INCOME FROM HOUSE PROPERTY

Rent Received (Annual Value)

240000

Less: Property Tax paid

25000

Net Annual Value

215000

Less: Standard Deduction 30%

64500

              (For repair etc.)
Less: Interest on borrowed capital

60000

124500

Income from House Property

90500

Note: Insurance expenses will not be allowed as deduction against income from house property.

Illustration-2:

Mr. Y purchased a house on 15.02.2008 and it was fully occupied by him during financial year 2016-17 (Assessment Year 2017-18). Other details are as under:-

Property Tax paid Rs.15000/=

Insurance of House Rs.3000/=

Interest paid on borrowed money for house Rs.220000/=

Compute his income under the head “Income from House Property”?

Solution:

COMPUTATION OF INCOME FROM HOUSE PROPERTY

Annual Value of Self Occupied House

0

Less: Interest on borrowed capital allowed

200000

Loss from House Property

200000

Notes:

  1. No expenditure other than interest on borrowed capital will be allowed as deduction against income from self occupied property.
  2. Since the house was purchased after 01.04.1999, the amount of deduction against  interest will be allowed Rs.200000/= during financial year 2016-17.

RELATED TERMS

• Learn Accounting, Free Accounting Tips
• General Accounting Terms
• General Tips Relating to Indian Income Tax Act
• Free Tally Learning
• General Tips Relating to Sales Tax-VAT
• General