House Property is one of the heads of income in Income Tax Act. It forms an integral part of the income head.

House property consists of any building or land appurtenant thereto of which the assessee is the owner. Property refer to any building (house, office building, warehouse, factory, hall etc.) and/or any land attached to the building (compound, garage, garden, car parking space, etc.).  Taxability may not necessarily be on actual rent or income received. If the property is not let out, the tax will be charged on the potential income the property is capable of yielding.

Further, House Property includes all types of cinema building, residential homes, godown, workshops, hotel building etc.

While learning about House Property there is important terminology that an assessee should understand:

• Annual Value: This term defines the capacity of the property to earn income. This is defined as Annual Value.

 

• Municipal Value: The value of the property is evaluated by municipal authorities on which they charge municipal tax.

 

• Standard Rent: Under Rent control Act, a standard rent is fixed. So, the owner cannot receive rent higher than that specified in the Rent Control Act. This Act ensures that the owner are paid fair rent, and tenants are not been exploited.

 

• Actual Rent received/receivable: This is the actual amount received by the owner from the tenants.

The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner shall be subject to Income-tax under the head ‘Income from House Property’ after claiming deduction under Sec. 24, provided such property or any portion of such property is not used by the assessee for the purpose of any business or profession, carried on by him, the profits of which are chargeable to Income-tax.

 Income Deduction from House Property (Section 24)

Income chargeable under Income from house property shall be computed after making the following deductions namely:

• Statutory Deduction: This term states that deduction of about 30% of the Net Asset Value is allowed towards repair, rent, collections etc. It does not depend upon the actual expenditure incurred. If the Annual Value is nil, the deduction is not allowed.

 

 

• Interest on borrowed Capital: In case the taxpayer has borrowed capital for the purpose of acquiring, constructing, repairing, renewing, renewing or reconstructing any property, the amount of interest payable on such loan is allowed as s deduction.

 

When can Annual value be NIL?

In some cases, the annual value can be considered to be nil if the owner is residing in his/her own property (i.e. Self- occupied) and does not derive financial benefit from the same.

How to compute Income from House Property?

Q1. When XYZ owns a house property in Delhi?

The particulars of the house are as under:

Particulars	House
Municipal Value	2,00,000
Fair Rent	1,60,000
Standard Rent	–
Actual Rent	22,000
Municipal Tax for the year	21,000
Period of Vacancy	6 months
Municipal tax paid during the year	80,000

Answer: Computation of Gross Annual Value:

Municipal Value	2,00,000
Fair Rent	1,60,000
Expected Rent	2,00,000
Standard Rent	–
Actual Rent	22,000*6= 1,32,000
Gross Annual Value	1,32,000
Less: Municipal tax paid	80,000
Net Annual Value	52,000
Statutory Deduction (30%)	15,600
Income from House Property	36,400

Relevant Factors regarding Income from House Property and Deduction allowed

1. A sum paid for brokerage or commission for arrangement of the loan will not be allowed for deductions.
2. Interest on Interest is deductible. The taxpayer is entitled to deduct only deducts only the interest payable by him on the capital borrowed.
3. As per a circular on 20/08/1969, where a fresh loan has been taken to repay the original loan, if the second loan has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income Tax Officer. Then, the interest paid on the second loan would be allowed as a deduction.
4. The taxpayer should not be allowed any deductions on account of any expenses incurred in relation to such property.

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