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Income From House Property

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Under the Income Tax ACT, 1961, income from house property is taxable in the hands of owner of the property. The term 'House Property' includes a building and its appurtenant lands, if any, let out to tenants or occupied by the owner for his own residence. The appurtenant lands may be in the form of courtyard or compound forming part of the building. Such land is distinguished from an open plot of land. Any rent received from a vacant plot is assessable as 'Income from other sources' and not as 'Income from house property'.

Let out Property

Annual Value The Income from house property is computed purely on a notional basis. Such income for the purpose of income tax is assessed on the basis of 'annual value' of the property. In case any property is in the occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the actual annual rent received or receivable shall be taken as the annual value of the property. If the property is let out only for a part of the year, the annual value for this purpose will be the actual rent received or receivable.

Local Taxes The taxes levied by local authority, such as General Municipal Tax, water and sewerage tax and education cess are deductible from the the annual value of a house property let out to a tenant. If such taxes are borne by the owner himself, such taxes are deductible only in the year of payment.

Deductions The following deductions are made from the net annual value after deducting local taxes from annual value of house property :-

If any unrealized rent is realized in any subsequent year, it will be taken as income from House Property of that particular year, even if the individual is not the owner of the property during that year.

Self Occupied House Property

Where the house property is fully utilized throughout the year by the owner for his own residence, the annual value of scuh house shall be taken to be nil, under Section 23(2), if the house is not actually let out during the any part of the financial year and no other benefit is derived therefrom. Interest on capital borrowed for purchase, construction, etc. of the house is deductible, subject to a maximum of Rs. 30000/- or Rs. 150000/- as the case may be under section 24.

Interest on borrowed capital for self occupied property The maximum amount of interest permissible in cases of self-occupied property is Rs.2.00 Lac (in respect of funds borrowed on or after 01.04.1999). Interest upto Rs.2.00 Lac is deductible if the following conditions are satisfied:

  • Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
  • The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed; and Rs. 2,00,000 maximum deduction will not be available in the following situations:
    1. if capital is borrowed before April 1, 1999 for purchase, construction, reconstruction, repairs or renewals of a house property;
    2. if capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property; and
    3. if capital is borrowed on or after April 1, 1999 but construction is not completed within 3 years from the end of the year in which capital was borrowed. In the above situations only deduction upto Rs. 30,000 can be claimed

    Repayment of principal in both the cases is covered under Section 80C of Income Tax.

    Steps of Computation of Income Tax From Let out House Property

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    If a house property consists of many floors, it will be treated as having as many dwelling units as the number of floors it contains. Income should be computed for each dwelling units viz. floor.


    Section 26 concerns properties which are owned by co-owners. This section provides that where property consisting of building or buildings and land appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person.