One of the most popular genres of queries from individuals is about the way the rental income from house property is taxable, and the way out.

In this section, we set out in simple terms and with a very user-friendly approach exactly how income received from house properties (i.e. rent) is taxed, and under what not conditions.

Let’s hit the stage now.

1)      Suppose I receive rental income from a house property, is it taxable?

Ans: Yes. The rental income received from a property is referred to as the annual value. So the annual value (i.e. rental income) of property is taxable as ‘Income from House Property ’ if the following conditions are satisfied:

• You own a property that consists of buildings or lands attached along with (for instance, a garage); and
• The property should not be used for the purpose of any business or profession, the profits of which are taxable.

2)      Is rental income received from a vacant plot of land also taxable?

Ans:  No, for the purpose of the ‘Income from House Property ’ section, there are definitions that are applicable, as follows:
“Building” is defined as any building (whether occupied or intended for self-occupation), office building, go-down, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section.

“Land” is defined as land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.
Income from buildings and lands appurtenant are taxable under Income from House Property.

So, this will include income from a building (that part of it which is owned by you e.g. the flat that you own), and the income from the land appurtenant. If you own a vacant plot and are receiving income from it, it is not included under ‘Income from House Property’; it is included under ‘Income from Other Sources’.

3)      I have let out a property and receiving rent there from.
How do I calculate how much of this rent is taxable?

Ans: We can capture this situation in 3 meagre steps.

First: Determine your property’s Gross Annual Value

Second: Deduct Municipal Taxes actually paid by the owner
Third: Make standard deductions available under Section 24(a) and Interest On Borrowed Capital under Section 24(b) i.e. a home loan, if any.

The net figure is your Taxable Income from House Property.

4)      How do I calculate the ‘annual value’ of my property?

Ans: Following are the required steps:

1. Find out reasonable expected rent of the property (municipal rent or fair rent, whichever is higher)
2. Consider rent actually received / receivable (refer below mentioned illustrations)
3. Take whichever is higher from a. and b.
4. Calculate loss due to vacancy

(Step c – step d. is the Gross Annual Value of your property)

Read Rest Of The FAQs here:

FAQ on House Property – Vol.I

FAQ on House Property – Vol.II

FAQ on House Property – Vol.III

FAQ on House Property – Vol.IV

FAQ on House Property – Vol.V

FAQ on House Property – Vol.VI