Income from House Property

Income From House Property

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Income From House Property

The term ‘house property’ denotes any building or land or apartment possessed by an individual. Under income tax, house property could also refer to any property such as warehouses, cinema complexes, factory sheds, agricultural land, farm houses, etc. Taxes under the head “Income from house property” is imposed on a taxpayer for income earned from such property. In this article, we look at the income tax provisions related to the head ‘Income from house property”.

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Conditions for Taxability

The following conditions are to be satisfied for an income to be taxed under the head “Income from house property”:

  • The respective taxpayer must own the property.
  • The property should comprise of buildings or land or apartment.
  • The owner shouldn’t utilize the property for commercial purposes.

Calculation of Net Annual Value

Tax payable under the head “Income from house property” is determined by calculated the NET Annual Value, which can be done in the following manner:

Step 1:- Determine the annual rental income value and reduce the same from municipal taxes, whereby the Net Annual Value will be determined.

Step 2:- Sum it up with the applicable deductions under Section 24. This effectively concludes the calculation of “Income from house property”.

Know more about calculation and deductions from Net Annual Value.

Section 24 of Income Tax Act

Net Annual Value of a house property is calculated after deductions under Section 24 of the Income Tax Act. Let us now examine these deductions in brief:

Standard Deductions

Standard deduction is a mechanism in which the respective taxpayer will be allowed a standard deduction which is equivalent to 30% of the Net Annual Value. This deduction will be performed on the total Net Annual Value computed above.

Interest on Borrowed Capital

Deduction is allowed for the interest on capital pertaining to a property which has been acquired, constructed, repaired, renewed or reconstructed with the borrowed capital. Under this method of deduction, the liability of interest of the previous years will be aggregated and allowed as deduction for five succeeding financial years, starting from the year of acquisition/completion.

Unrealized Rent and its Treatment

Unrealized rent, as the name would conveys, refers to the rent which the owner of a property cannot realize. Unrealised rent can be deducted while computing the gross annual value.

The amount of unrealised rent which the owner cannot realize must be equivalent to the amount of rent liable yet unpaid by the tenant. Hence, rent that is proved to be unrecoverable would be termed as unrealised rent and allowed as a deduction. Deduction under unrealized rent can be performed on the satisfaction of the following conditions:

  • The tenancy is bona fide.
  • The particular tenant has been vacated, or was attempted to be vacated.
  • The tenant hasn’t occupied any other property of the owner.
  • The owner has done everything in his/her capacity to legally recover the unpaid rent or convinces the Assessing Officer that legal proceeding wouldn’t result in a recovery.

Provision for Self-Occupied Property

Rental income for a self-occupied property will be considered to be ‘Nil’, as the property is occupied by the owner, due to which there is no scope for any receipt of rent. As a result, neither municipal taxes nor standard deduction can be made. Deductions are nevertheless allowed on the sum of interest .

On the other hand, if the respective owner is in possession of more than one residential property, he/she is entitled to treat any one of the properties as self-occupied. The other properties will be considered as let out and the value will be calculated accordingly.

Co-ownership and Pertinent Implications

If the ownership of a property is equally vested with multiple taxpayers, and their representative shares are definite and determinable, they wouldn’t be assessed by an AOP with respect to such property. The share held by such persons would instead be computed in accordance with the provisions of Section 22-25, and shall be included in the total income in a manner that is applicable.

Deemed Ownership

The income-tax laws contain a provision for deemed ownership, wherein a taxpayer can be deemed to be the owner of the property, despite not being its rightful legal owner. To know more, kindly refer to our article on deemed ownership.

Set-off and Carry Forward of Losses

Under this provision, the taxpayer is entitled to set off the losses incurred from a house property from income of any other house property possessed by the taxpayer.

Know more about carry forward of losses from house property.

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