INCOME FROM HOUSE PROPERTY

In India, income from house property is considered as a separate source of income and is taxed under the head “Income from House Property” in the Income Tax Act.

Computation of Income from house property of …………. For the Assessment Year ……….

Particulars Details	Amount
Gross Annual Value (GAV)	****
Less: Municipal tax	****
Net Annual Value (NAV)	****
Less: Deductions u/s	****
24(a) Standard deduction [30% of NAV]	****
24(b) Interest on borrowed capital	****
Income from house property	****

The income from house property in India is calculated by subtracting the allowable deductions from the gross annual rent. The gross annual rent is the rent received or receivable for the property during the financial year. The allowable deductions include:

• Municipal taxes paid during the financial year.
• The net annual value (NAV) is calculated by subtracting the above deductions from the gross annual rent.

Tax on the income from house property is calculated at the slab rate applicable to the individual or the HUF (Hindu Undivided Family) owning the property.

For example,

Let’s say the gross annual rent is INR 1,20,000 and the municipal taxes paid during the financial year is INR 20,000.

NAV = Gross annual rent – Municipal taxes = 1,20,000 – 20,000 = 1,00,000

Standard deduction = 30% of NAV = 30% of 1,00,000 = 30,000

Taxable income = NAV – Standard deduction = 1,00,000 – 30,000 = 70,000

Tax on the income from house property will be calculated based on the slab rate of the individual or HUF owning the property.

It's Important to note that there are other deductions that can be availed under section 24 of the Income Tax Act such as interest on borrowed capital for purchase or construction of the property.

GAV shall be computed as under:

Particulars	Amount
1st Compute Reasonable Expected Rent [RER]	****
Gross Municipal Value (a)	****
Fair Rent (b)	****
Higher of the (a) and (b) [A]	****
Standard Rent [B]	****
Reasonable Expected Rent [Lower of (A and B)] [C]	****
2nd Actual Rent Received or Receivable (ARR) – Unrealised Rent of the current year (UR) [D]	****
3rd Gross Annual Value	****
Higher of C and D shall be considered as GAV	****
4th However, where ‘ARR – UR’ is lower due to vacancy, then ‘ARR – UR’ computed in step 2 will	****
Be treated as GAV.	****

Gross Annual Value (GAV):

                                 Normally, income tax is charged on income, but under the head ‘come from house property’, tax is not charged On the rent earned from house property but on the inherent earning capacity of the house property. Such earning Capacity is termed as Annual Value.

The following categories for the purpose of computation:

•  Let out property [Sec. 23(1)]
• Property not actually occupied by the owner [Sec. 23(2)(b)]
•  Self-occupied property [Sec. 23(2)(a)].
• Partly let out and partly self occupied property [Sec. 23(3)]
• Deemed to be let out property [Sec. 23(4)].
•  
•  Recovery of arrears of rent and unrealized rent [Sec. 25A]

DEDUCTIONS u/s 24:

Section 24 of the Income Tax Act in India allows for certain deductions in calculating the taxable income from house property. These deductions are allowed to reduce the net income from the property and thus lower the tax liability. The deductions available under section 24 include:

• Standard Deduction [Sec. 24(a)]
• Interest on Loan [Sec. 24(b)]

Standard deduction u/s 24(a)

30% of the net annual value is allowed as standard deduction in respect of all expenditures (other than interest On borrowed capital) irrespective of the actual expenditure incurred.

Note: Where NAV is negative or zero, standard deduction u/s 24(a) is not available.

Interest on loan or borrowed capital u/s 24(b)

Interest payable on amount borrowed for the purpose of purchase, construction, renovation, repairing, Extension, renewal or reconstruction of house property can be claimed as deduction on accrual basis. The interest paid on a home loan taken for the purpose of acquiring, constructing, repairing, or renewing the property is eligible for deduction. The maximum deduction that can be claimed is Rs. 2,00,000 per financial year. Expenses incurred on repairs and maintenance of the property can also be claimed as deductions.

For the purpose of calculation, interest on loan is divided into two parts:

1. Pre-construction period :

Pre-construction period means the period Starting from the day commencement Of construction or the day of borrowing Whichever is later and ending on March 31 Immediately prior to the year of completion Of construction.

Example: X has taken a loan on 1/4/1998 for Construction of house property. Construction Started on 1/6/2000 and completed on 17/8/2011. In such case, pre construction Period will be a period starting from 1/6/2000 And ending on 31/3/2011.

Treatment: Interest for pre-construction Period (to the extent it is allowed as deduction Under any other provisions of the Act) will be Accumulated and claimed as deduction Over a period of 5 continuous years in equal Instalments commencing from the year of Completion of construction.

2. Post-construction period:

Post-construction period means the period Starting from the beginning of the year In which construction is completed and Continues until the loan is repaid.

Treatment: It can be fully claimed as Deduction in the respective year(s).

In the given example, post-construction Period will start from 01/04/2011.