Income from House Property (Section 22 to 27)
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HP under Rent Control Act
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HP not covered under Rent Control Act
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||||
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a. FRV or MRV whichever is higher
b. Amount (a) or SR whichever is lower
c. Amount (b) or AR whichever is higher
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xxx
xxx
xxx
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Fair Rental Value (FRV) or
Municipal Rental Value (MRV) or
Actual/Annual Rent (AR)
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Whichever is higher
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Gross Annual Value
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(c)
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Gross Annual Value
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Xxx
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Less: Municipal taxes paid by owner
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xx
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Less:Municipal taxes paid by owner
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xx
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||
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Net Annual Value
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xxx
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Net Annual Value
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xxx
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||
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Less: Deductions U/S 24
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Less: Deductions U/S 24
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a. Standard deduction @ 30% NAV
b. Interest on Loan
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x
x
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xxx
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a. Std. Deduction @ 30% NAV
b. Interest on Loan
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x
x
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xxx
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Income from House Property
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xxx
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Income from House Property
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xxx
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· FRV – Fair Rental Value (Rent of similar house in the same location)
· MRV – Municipal Rental Value (Municipal valuation of Rent)
· AR – Actual Rent (Rate at which the HP is let out)
· SR – Refers to Standard Rent fixed by Rent Control Act.
· If SR is not given then HP is not covered by Rent Control Act
· Municipal Taxes paid (Current year / advance / arrear) can be deducted.
· Sanitation tax, Corporation tax and Educational Cess will also be treated as Municipal tax
· Municipal Taxes paid by Tenant/Outstanding amount cannot be deducted.
· Deduction U/S 24 is exhaustive and no other deduction is allowed from HP Income
· Ignore Ground rent paid, Insurance, Repairs and collection charges of rent, etc…
Interest on Loan taken for Purchase/Construction / Repairs/Renovation/ Reconstruction / Improvement of House Property
- Pre-Construction Interest: -
Deduction is allowable in 5 equal installments (i. e. 5 Subsequent years from the completion of construction)
Deductible preconstruction period interest will be
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Loan Amount
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X
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Interest Rate
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Preconstruction period(months)
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X
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1
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12
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5
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What is pre-construction period ?
Ø The period commencing on the date of borrowing and ending March 31 immediately prior to the date of completion of construction
- Previous year interest – Actual interest paid/payable on loan outstanding during the RPY i. e. 2004-05)
Computation income in special cases
Case 1. HP let-out for a period and self-occupied for a period (Sec 23(2)
(e. g. 9 months let and 3 months SOP)
Ø No benefit will be given for self occupied period.
Ø GAV will be calculated as if the house is let for the whole year
(i. e. MRV/FRV/SR for whole year and AR for number of months let.)
Case 2. A portion is let-out and a portion is self-occupied.
(e. g. 60% let and 40% SOP)
- NAV of Self Occupied Portion will be treated as NIL
- NAV of Let-out portion is calculated as follows
{ FRV / MRV / SR } x % of house let-out
AR x No. of months let-out
(Municipal taxes can be deducted only to the proportion of HP let-out)
Restriction on Interest on loan in case of Self-occupied property / portion
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Purpose / Date of Loan
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Maximum amount of deduction U/S 24
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a. if loan is taken before 1-4-99 - - - - - - - - - -
b. if loan is taken on or after 1-4-99 - - - - - - - - -
2. for Repairs / Renovation / Reconstruction / Improvement
(Date of borrowing is immaterial)
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Rs.
30,000
1,50,000
30,000
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Ø Above restrictions will not be applicable to Let-out and Deemed let-out Houses
Case 3. HP with unrealized rent
o MRV / FRV / SR will be taken for the whole year
o (AR – Unrealised rent) will be taken for to compute GAV
Case 4. HP with Vacancy
o First Compute Expected Rental Value ( i.e. Expected GAV) of HP for whole the year
o Then Allow deduction for Vacancy (i.e. No. of months Vacant x Actual Rent)
Case 5. HP with Vacancy and unrealized rent
· MRV / FRV / SR will be taken for the whole year
(AR – Unrealised rent) will be taken to compute Expected Rental Value
· Allow deduction for Vacancy (i.e. No. of months Vacant x Actual Rent)
Case 6. One Self – Occupied HP
Net annual value of SOP will be taken as NIL
Case 6. Deemed let-out HPs (When more than One Self – Occupied HP is given) (Sec 23(4)
When more than one house is self-occupied, the assesee can claim the benefit of Self Occupied Property (SOP) for only one house and others will be treated as Deemed to be let-out and therefore fully taxable.
Property having higher taxable value (if treated as deemed to be let) will be treated as SOP (also consider Deduction in respect of Interest on Loan)
Case 7. When composite rent is given.
(Lift maintenance charges, Water Charges, Security Expenses etc.. charged to tenant included in rent)
· In order to calculate Actual rent, deduct the amount so included
· Amount collected towards such amenities Less Actual Expenses incurred for amenities will be taxable as Income from Other Sources (IFOS).
House Property incomes exempt from tax
a. income from farm house [sec. 2(1A)(c) read with sec. 10(1)] ;
b. annual value of any one palace of an ex-ruler [sec. 10(19A)] ;
c. property income of a local authority [sec. 10(20)] ;
d. property income of an authority constituted for the purpose of planning, development or improvement of cities, towns and villages [sec. 10(20A)] ;
e. property income of an approved scientific research association [sec. 10(21)] ;
f. property income of a games association [sec. 10(23)] ;
g. property income of a university or other educational institutions [sec. 10(23C)] ;
h. property income of a hospital or other medical institution [sec. 10(23C);
i. property income of a trade union [sec. 10(24)] ;
j. property income in the case of a person resident of Ladakh [sec. 10(26A)
k. any income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the time being in force for the marketing of commodities [sec. 10(29)] ;
l. house property held for charitable purposes [sec. 11] ;
m .property income of a political party [sec. 13A] ;
n. property used for own business or profession [sec. 22] ; and
o. one self-occupied property [sec. 23(2)].
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