Income Tax: Income under the House Properties – Computation, Deduction for interest on housing loan

Income under the House Properties 

2.1 Basis of Charge [Section 22]:

Income from house property shall be taxable under this head if following
conditions are satisfied:

a) The house property should consist of any building or land appurtenant
thereto;

b) The taxpayer should be the owner of the property;

c) The house property should not be used for the purpose of business or
profession carried on by the taxpayer.

2.2 Computation of income from house property:

Income from a house property shall be determined in the following manner:

2.3 Gross Annual value [Sec. 23(1)]

The Gross Annual Value of the house property shall be higher of following:

a) Expected rent, i.e., the sum for which the property might reasonably be
expected to be let out from year to year. Expected rent shall be higher of
municipal valuation or fair rent of the property, subject to maximum of standard
rent;

b) Rent actually received or receivable after excluding unrealized rent but
before deducting loss due to vacancy

Out of sum computed above, any loss incurred due to vacancy in the house
property shall be deducted and the remaining sum so computed shall be deemed to
the gross annual value.

2.4 Deductions:

* Any interest pertaining to the period prior to the year of acquisition/
construction of the house property shall be allowed as deduction in five equal
installments, beginning with the year in which the property was acquired/
constructed.

* Deduction for interest on borrowed capital shall be limited to Rs. 30,000
in following circumstances:

a) If capital is borrowed before 01-04-1999 for the purpose of purchase or
construction of a house property;

b) If capital is borrowed on or after 01-04-1999 for the purpose of
re-construction, repairs or renewals of a house property;

c) If capital is borrowed on or after 01-04-1999 but construction of house
property is not completed within five years from end of the previous year in
which capital was borrowed.

2.4.1 Deduction for interest on housing loan [Section 80EE]

Deduction of up to Rs 50,000 shall be allowed to an Individual for interest
payable on loan taken for the purpose of acquisition of a house property subject
to following conditions:

 a)  Loan has been sanctioned by Financial institution during the financial
year 2016-17;

 b)  The amount of loan sanctioned does not exceed Rs 35,00,000;

 c)  The value of residential property does not exceed Rs 50,00,000;

 d)  The assessee does not own any residential house property on the date of
sanction of loan;

 e)  Where deduction has been allowed under this section, no deduction shall
be allowed in respect of such interest under any other provision.

2.5 Computation of Income from House Property

2.6 Composite Rent:

If letting out of building along with movable assets i.e., machinery, plan,
furniture or fixtures, etc. forms part of a single transaction and are
inseparable, the composite rent shall be taxable under the head “Profits and
gains from business or profession” or “Income from other sources”, as the case
may be. On the other hand, if the letting out of building is separable from
letting of other assets, then income from letting out of building shall be
taxable under the head “Income from house property” and income from letting out
of other assets shall be taxable under the head “Profits and gains from business
or profession” or “Income from other sources”, as the case may be.

2.7 Treatment of unrealized rent and arrears of rent [Explanation
to section 23(1)]

2.7.1 Deduction for unrealized rent:

Unrealized rent is that portion of rental income which the owner could not
realize from the tenant. Unrealized rent is allowed to be deducted from actual
rent received or receivable only if the following conditions are satisfied:

a) The tenancy is bona fide;

b) The defaulting tenant has vacated, or steps have been taken to compel him
to vacate the property;

c) The defaulting tenant is not in occupation of any other property of the
assessee;

d) The taxpayer has taken all reasonable steps to institute legal proceedings
for the recovery of the unpaid rent or satisfies the Assessing Officer that
legal proceedings would be useless.

2.7.2 Arrears of rent or recovery of unrealized rent [Section 25A]

Amount received in respect of arrears of rent or any subsequent recovery of
unrealized rent shall be deemed to be the income of taxpayer under the head
“Income from house property” in the year in which such rent is realized or
received (whether or not the assessee is the owner of that property in that
year).

Further, 30% of such rent shall be allowed as deduction.

2.8 Co-owner and Deemed Owner

2.8.1 Property owned by co-owners [Section 26]:

If house property is owned by co-owners and their share in house property is
definite and ascertainable than the income of such house property will be
assessed in the hands of each co-owner separately. For the purpose of computing
income from house property, the annual value of the property will be taken in
proportion to their share in the property. In such a case, each co-owner shall
be entitled to claim benefit of self-occupied house property in respect of their
share in the property (subject to prescribed conditions). However, where the
shares of co-owners are not definite, the income of the property shall be
assessed as that of an Association of persons.

2.8.2 Deemed owner [Section 27]:

Income from house property is taxable in the hands of its owner. However, in
the following cases, legal owner is not considered as the real owner of the
property and someone else is considered as the deemed owner of the property to
pay tax on income earned from such house property:

1. 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;

2. The holder of an impartible estate shall be deemed to be the individual
owner of all the properties comprised in the estate;

3. A member of a co-operative society, company or other association of
persons to whom a building or part thereof is allotted or leased under a house
building scheme shall be deemed to be the owner of that building or part
thereof;

4. 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 shall be deemed to be the
owner of that building or part thereof;

5. 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 section 269UA(f), shall be deemed to be the owner of that
building or part thereof.

[As amended by Finance Act, 2018]