House Property: Income from House Property Calculation


House Property: Income from House Property Calculation

Income from house property is calculated in the manner provided in The Income Tax Act. Calculation of Income from House property is done under the lights of section 22, 23, 24, 25, 25A, 25AA, 25B, 26 and 27 of the Income Tax Act. Income from house property is charged to tax as per section 22 of the Income Tax Act, which states as follows:
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 the purposes of 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”.
Explanation

There are three conditions; fulfillment of which will consider the income as Income from House Property:

1. Assessee is the owner
2. The property should have a building or any land attached thereto.
3. The property must not be used by the assessee for the purpose of his business and profession.
Points to be considered while calculation Income from House Property:
v Annual Value of Property: The annual value of house property will be as follows:
          Where the Property in not let out: The value at which the same house property can be rented / let out

          Where the Property is let out: There can be many consequences such as;
o   Property is Fully let out:
Higher of, Actual Rent received or the value at which the same house property can be rented / let out
o   Property is Partly let out:
Higher of, Actual Rent received or the value at which the same part of house property can be rented / let out
o   Property or any part of property is Vacant for whole year or part of year:
Lower of, Actual Rent received or the value at which the same part of house property can be rented / let out
          Where the Property includes some unusable part such as when it is used for the business & Profession of the assessee or is used for his own residence than the value will be taken as Nil.                                                                                                                                                      
o   The above will be subject to condition that such part could not have been let out by the assessee during any time of the previous year.
          Where the Property includes more than two houses the assessee has to choose one for his own residential purpose, it will not attract the sections of Income Tax Act to charge tax on it.

o   But the other which is not chosen as the residential house by the assessee will attract the taxes on deemed income of let out if not actually let out and on rent income if it is let out.
v     When any Taxes are levied by a local authority in respect of any property it shall always be deemed to include service taxes and all such taxes are allowed as deduction when they are actually paid. Thus the year in which such taxes are taxable is not taken into consideration.
v Deductions allowable on computation of Income from House Property:

          30% of the Annual Value as calculated above
          Interest payable when capital is borrowed for construction, acquisition, repairs, renewal or reconstruction of such house property subject to following conditions:
o   Where the property includes some unusable part such as when it is used for the business & Profession of the assessee or is used for his own residence and the annual value will of which will be taken as Nil – Maximum Rs. 30,000
o   Where the property is acquired or constructed using borrowing on or after 01.04.1999 and the construction and / or acquisition is completed within three years from the end of financial year in which capital is borrowed, i.e. capital borrowed on 01.02.2000, the end of financial year is 31.03.2001. so the construction and / or acquisition must be complete on or before 31.03.2004 – Maximun Rs. 1,50,000.
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 shall be deducted in the following manner:
o   equal instalments for five years commencing from the same previous year.
          Deduction can only be claimed if the assessee can furnis

hes 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.

          New loan will mean the whole or any part of a loan taken by the assessee after the capital borrowed, for the purpose of repayment of capital borrowed prior to it.
v  Arrears of rent received

When the assessee has let out the house property being an owner and if he receives the rent which was in arrears in any previous years, the chargeable amount under “Income from House Property” will be calculated as follows:
       
Rent received which was in arrears                                          XXX
Less:              30% of the Amount so received                                          (XXX)
                                                Income from House Property              XXX
v  Property owned by co-owners

When there are more than one owner of one house property, the income will not be considered as income of association of person but on individual share of the asessee.
v  Certain definitions to understand the concept
Owner of the House Property: 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.
Deemed Owner as per section 27:
27 ii) the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate
27 (iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof i

s 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 ;

27 (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 ;
27 (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;

Example


Details of Mr X. for the Financial Year 2012-13. He owns two houses.

Particulars
House I
House II
Municipal Value of the house
480000
720000
Standard Rent

360000
600000
Date of completion of  construction
10.05.2011
Interest for the Year on borrowed capital
190000
Municipal Taxes paid
5000
6200
Compute Income from House Property.
Solution:
Income from House Property

Particulars
House I
House II
Gross Annual Value of the house
(Higher of Municipal Value and fair value subject to Standard Rent)
360000
600000
Less: Municipal Taxes
5000
6200
Net Annual Value
355000
593800

Less: 30% Deduction
106500
178140
          Interest on Capital borrowed (Maximum rs. 150000)
150000
Income from House Property
248500
415660

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