How to Calculate Income from House Property

House Property

Income from house property means the income earned from a property by the assessee. House property consists of any building or land attached to the building. House property includes any building (house, office building, warehouse, factory, hall, shop, auditorium, etc.( and any land attached to building (compound, garage, garden, car parking, playground, etc.).

Rental income of a person other than the owner cannot charge to tax under the head ‘Income from House Property’. Hence, rental income received by a tenant from subletting cannot be charged to tax the head ‘Income from House Property. Such income is taxable under the head ‘Income from Other Sources’ or ‘profits and gains from Business or Profession, as the case may be.

Tax Chargeability (Section 22)

The annual value of property consisting of any building or lands attached to it, of which the assessee is the owner, is chargeable to tax under the head ‘Income from House Property’. 

Deductions from Income from House Property (Section 24)

Income chargeable under this head shall be computed after making the following deductions

Standard Deductions 

From the net annual value calculated, the assessee shall be allowed a standard deduction of a sum equal to 30% of the net annual value.

Interest on Borrowed Capital

Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as a deduction.

Any amount paid for brokerage or commission for the arrangement of the loan will not be allowed as deduction.

Computation of Taxable Income from Salary

Computation of Total Income and Tax Liability

Income Tax Slab and Rates for FY 2016-17 /AY 2017-18

Annual Value

The annual value of a property is the sum of which the property might reasonably expect to let out from year to year. In determining the annual value there are four factors which are normally taken into consideration. These are:

  1. Actual rent received or receivable,
  2.   Municipal value,
  3. Fair rent of the property,
  4. Standard rent

Computation of Annual Value of a Property (Section 23(1))

This involves following steps:

Step I: Determine the gross annual value.

Step II: From the gross annual value compared in Step I, deduct Municipal tax paid by the owner during the previous year.

The balance is the net annual value which, as per the Income-tax Act is the annual value.

Illustration

Mr. John has let out one house property @Rs. 12,000 p.m., Municipal Valuation Rs. 12,500 p.m., Fair Rent Rs. 13,000 p.m., Standard rent Rs. 14,000 p.m., Municipal Tax paid Rs.6000.

Solution

Computation of Income under the head House Property

ParticularsRs.
Gross Annual Value 1,56,000.00
Working NoteRs.
i) Fair Value (13,000*12) 1,56,000.00
ii) Municipal Value (12,500*12) 1,50,000.00
iii) Higher of i) or ii) 1,56,000.00
iv) Standard Rent ( 14,000*12) 1,68,000.00
v) Expected Rent (lower of c or d) 1,56,000.00
vi) Rent recieved/reveivable (12,000*12) 1,44,000.00
Gross Annual Value shall be higher v) or vi) 1,56,000.00
Less: Municipal Tax6,000.00
Net Annual Value1,50.000.00

The annual value has to be determined for different categories of properties. These categories are:

Category A. House Property – Let out throughout the previous year.

Category B. House Property – Let out and was vacant during the whole or part of the previous year.

Category C. House Property – Part of the year let out and part of the occupied for own residence

Category A. House Property – Let out throughout the previous year

Step 1 : Determining the gross annual value.

Step 2 : Deduct taxes levied by any local authority in respect of the property, i.e., Municipal Taxes.

Category B. House Property – Let out and was vacant during the whole or part of the previous year.

According to Section 23(1), the annual value of such property shall be deemed to be:-

  1. the sum for which the property might reasonably be expected to let out from year to year, i.e., the expected rent; or
  2. where the property or any part of the property is let out 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, i.e., the actual rent; or
  3. where the property or any part of the property is let out 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, i.e., the actual rent, if any.

Category C. House Property – Part of the year let out and part of the occupied for own residence

Where a house property is let out for part of the year and rest of the year occupied for own residence, its annual value shall be determined as per the provision of section 23(1) relating to let out property. In this case,the period of occupation of property for own residence shall be irrelevant and the annual value of such house property shall be as if it is let out for part of the year. Hence, the expected rent as per section 23(1) (a) shall be taken for full year but the actual rent received or receivable shall be taken only for the period it is let out and the gross annual value shall be higher of these two.

Leave a Reply

Your email address will not be published. Required fields are marked *