Computation of “Income from house property” for different categories of property :
(i) Property let out throughout the previous year
| PARTICULARS | Amount | |||
|
Step 1 |
Computation of GAV
Compute ER |
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|
|
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Step 2
|
ER = Higher of MV and FR, but restricted to SR
Compute Actual rent received/receivable Actual rent received/receivable less unrealized rent as per Rule 4 |
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| Step 3 | Compare ER and Actual rent received/receivable | |||
| Step 4 | GAV is the higher of ER and Actual rent received/receivable | |||
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|
A B |
|||
|
Less: |
Gross Annual Value (GAV)
Municipal taxes (paid by the owner during the previous year) |
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| Net Annual Value (NAV) = (A-B) | C | |||
| Less: | Deductions u/s 24 | |||
| (a) 30% of NAV
(b) Interest on borrowed capital (actual without any ceiling limit) Income from house property (C-D-E) |
D
E |
|
||
| F | ||||
Illustration
Anirudh has a property whose municipal valuation is Rs 1,30,000 p.a. The fair rent is Rs 1,10,000 p.a. and the standard rent fixed by the Rent Control Act is ` 1,20,000 p.a. The property was let out for a rent of Rs 11,000 p.m. throughout the previous year. Unrealised rent was Rs 11,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @10% of municipal valuation. Interest on borrowed capital was Rs 40,000 for the year. Compute the income from house property of Anirudh for A.Y.2016-17.
Solution
Computation of Income from house property of Mr. Anirudh for A.Y. 2016-17
| Particulars | Amount in Rs | ||
|
Step 1
|
Computation of GAV
Compute ER ER = Higher of MV of Rs 1,30,000 p.a. and FR of Rs 1,10,000 p.a., but restricted to SR of Rs 1,20,000 p.a. |
1,20,000
|
|
| Step 2
|
Compute actual rent received/receivable
Actual rent received/receivable less unrealized rent as per Rule 4 = Rs 1,32,000 – Rs 11,000 |
1,21,000
|
|
| Step 3
|
Compare ER of Rs 1,20,000 and Actual rent received/ receivable of Rs 1,21,000. |
|
|
| Step 4 | GAV is the higher of ER and Actual rent received/receivable | 1,21,000 | |
| Gross Annual Value (GAV)
|
1,21,000 | ||
| Less:
|
Municipal taxes (paid by the owner during the previous year) = 10% of Rs 1,30,000 |
|
13,000 |
| Net Annual Value (NAV) | |||
| Less: | Deductions under section 24 | ||
| (a) 30% of NAV | 32,400 | ||
| (b) Interest on borrowed capital
(actual without any ceiling limit) |
40,000 |
72,400
|
|
| Income from house property | 35,600 | ||
(ii) Let out property vacant for part of the year
c
| Particulars | Amount | ||
| Computation of GAV | |||
| Step 1 | Compute ER
ER = Higher of MV and FR, but restricted to SR |
||
| Step 2 | Compute Actual rent received/receivable
Actual rent received/receivable for let out period less unrealized rent as per Rule 4 |
||
| Step 3 | Compare ER and Actual rent received/receivable | ||
| Step 4 | If Actual rent is lower than ER owing to vacancy, then Actual rent
is the GAV. If Actual rent is lower than ER due to other reasons, then ER is the GAV. However, in spite of vacancy, if the actual rent is higher than the ER, then Actual rent is the GAV. |
||
| Gross Annual Value (GAV) | A | ||
| Less: | Municipal taxes (paid by the owner during the previous year) | B | |
| Net Annual Value (NAV) = (A-B) | C | ||
| Less: | Deductions under section 24 | ||
| (a) 30% of NAV | D | ||
| (b) Interest on borrowed capital (actual without any ceiling limit) | E | ||
| Income from house property (C-D-E) | F | ||
Illustration
Ganesh has a property whose municipal valuation is Rs 2,50,000 p.a. The fair rent is Rs 2,00,000 p.a. and the standard rent fixed by the Rent Control Act is Rs 2,10,000 p.a. The property was let out for a rent of Rs 20,000 p.m. However, the tenant vacated the property on 31.1.2016. Unrealised rent was Rs 20,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @8% of municipal valuation. Interest on borrowed capital was Rs 65,000 for the year. Compute the income from house property of Ganesh for A.Y.201 6-17.
Solution
Computation of income from house property of Ganesh for A.Y.2016-17
| Particulars | Amount | ||
| Computation of GAV | |||
| Step 1 | Compute ER
ER = Higher of MV of Rs 2,50,000 p.a. and FR of Rs 2,00,000 p.a., but restricted to SR of Rs 2,10,000 p.a. |
2,10,000 |
|
| Step 2 | Compute Actual rent received/receivable
Actual rent received/receivable for let out period less unrealized rent as per Rule 4 = Rs 2,00,000 – Rs 20,000 |
1,80,000 |
|
| Step 3 | Compare ER and Actual rent received/receivable | ||
| Step 4 | In this case the actual rent of Rs 1,80,000 is lower than ER of Rs 2,10,000 owing to vacancy, since, had the property not been vacant the actual rent would have been Rs 2,20,000 (Rs 1,80,000 + Rs 40,000). Therefore, actual rent is the GAV. |
1,80,000 |
|
| Gross Annual Value (GAV) | 1,80,000 | ||
| Less: | Municipal taxes (paid by the owner during the previous year) = 8% of Rs 2,50,000 | 20,000 | |
| Net Annual Value (NAV) = (A-B) | 1,60,000 | ||
| Less: | Deductions under section 24 | ||
| (a) 30% of NAV = 30% of Rs 1,60,000 | 48,000 | ||
| (b) Interest on borrowed capital (actual without any ceiling limit) | 65,000 | 1,13,000 | |
| Income from house property (C-D-E) | 47,000 | ||
(iii) Self-occupied property or Unoccupied property
| Particulars | Amount | |
|
Less: |
Annual value under section 23(2)
Deduction under section 24 Interest on borrowed capital |
Nil |
| Interest on loan taken for acquisition or construction of house on or
after 1.4.99 and same was completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of Rs 2,00,000 (including apportioned pre-construction interest). |
E | |
| (ii) In case of loan for acquisition or construction taken prior to
1.4.99 or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of Rs 30,000. |
||
| Income from house property | -E | |
Illustration
Poorna has one house property at Indira Nagar in Bangalore. She stays with her family in the house. The rent of similar property in the neighbourhood is Rs 25,000 p.m. The municipal valuation is Rs 23,000 p.m. Municipal taxes paid is Rs 8,000. The house was constructed in the year 2009 with a loan of Rs 20,00,000 taken from SBI Housing Finance Ltd. The construction was completed on 30.11.2011. The accumulated interest up to 31.3.2011 is Rs 1,50,000. During the previous year 2015-16, Poorna paid Rs 2,40,000 which included Rs 1,80,000 as interest. Compute Poorna’s income from house property for A.Y. 2016-17.
Solution
Computation of income from house property of Smt. Poorna for A.Y.2016-17
| Particulars | Amount ( Rs ) | |
| Annual Value of one house used for self-occupation under section 23(2) | Nil | |
| Less: | Interest on borrowed capital
Interest on loan was taken for construction of house on or after 1.4.99 and same was completed within 3 years – interest paid or payable subject to a maximum of Rs 2,00,000 (including apportioned preconstruction interest) will be allowed as deduction. |
2,00,000 |
| In this case the total interest is Rs 1,80,000 + Rs 30,000 (Being 1/5th of Rs 1,50,000) = Rs 2,10,000. However, the interest deduction is restricted to Rs 2,00,000. | ||
| Loss from house property | -2,00,000 | |
(iv) House property let-out for part of the year and self-occupied for part of the year
| Particulars | Amount | |||
| Computation of GAV | ||||
| Step 1 | Compute ER for the whole year
ER = Higher of MV and FR, but restricted to SR |
|||
| Step 2 | Compute Actual rent received/receivable
Actual rent received/receivable for the period let out less unrealized rent as per Rule 4 |
|||
| Step 3 | Compare ER for the whole year with the actual rent received/
receivable for the let out period |
|||
| Step 4 | GAV is the higher of ER computed for the whole year and Actual
rent received/receivable computed for the let-out period. |
|||
| Gross Annual Value (GAV) | A | |||
| Less: | Municipal taxes (paid by the owner during the previous year) | B | ||
| Net Annual Value (NAV) = (A-B) | C | |||
| Less: | Deductions under section 24 | |||
| (a) 30% of NAV | D | |||
| (b) Interest on borrowed capital (actual without any ceiling limit) | E | |||
| Income from house property (C-D-E) | F | |||
Illustration
Smt.Rajalakshmi owns a house property at Adyar in Chennai. The municipal value of the property is Rs 5,00,000, fair rent is Rs 4,20,000 and standard rent is Rs 4,80,000. The property was let-out for Rs 50,000 p.m. up to December 2015. Thereafter, the tenant vacated the property and Smt. Rajalakshmi used the house for self-occupation. Rent for the months of November and December 2015 could not be realised in spite of the owner’s efforts. All the conditions prescribed under Rule 4 are satisfied. She paid municipal taxes @12% during the year. She had paid interest of Rs 25,000 during the year for amount borrowed for repairs for the house property. Compute her income from house property for the A.Y. 2016-17.
Solution
Computation of income from house property of Smt. Rajalakshmi for the A.Y.2016-17
| Particulars | Amount | |||
| Computation of GAV | ||||
| Step 1 | Compute ER for the whole year
ER = Higher of MV of Rs 5,00,000 and FR of Rs 4,20,000, but restricted to SR of Rs 4,80,000 |
4,80,000 |
||
| Step 2 | Compute Actual rent received/receivable
Actual rent received/receivable for the period let out less unrealized rent as per Rule 4 = (Rs 50,000´9) – (Rs 50,000 ´ 2) = Rs 4,50,000 – Rs 1,00,000 = |
3,50,000 |
||
| Step 3 | Compare ER for the whole year with the actual rent
received/receivable for the let out period i.e. Rs 4,80,000 and Rs 3,50,000 |
|||
| Step 4 | GAV is the higher of ER computed for the whole year and Actual
rent received/receivable computed for the let-out period. |
4,80,000 | ||
| Gross Annual Value (GAV) | 4,80,000 | |||
| Less: | Municipal taxes (paid by the owner during the previous year) = 12% of Rs 5,00,000 | 60,000 | ||
| Net Annual Value (NAV) = (A-B) | 4,20,000 | |||
| Less: | Deductions under section 24 | |||
| (a) 30% of NAV = 30% of Rs 4,20,000 | 1,26,000 | |||
| (b) Interest on borrowed capital (actual without any ceiling limit) | 25,000 | 1,51,000 | ||
| Income from house property (C-D-E) | 2,69,000 | |||
(v) Deemed to be let out property
| Particulars | Amount | ||
| Gross Annual Value (GAV) | |||
| ER is the GAV of house property
ER = Higher of MV and FR, but restricted to SR |
A | ||
| Less: | Municipal taxes (paid by the owner during the previous year) | B | |
| Net Annual Value (NAV) = (A-B) | C | ||
| Less: | Deductions under section 24
(a) 30% of NAV |
D |
|
| (b) Interest on borrowed capital (actual without any ceiling limit) | E | ||
| Income from house property (C-D-E) | F | ||
Illustration
Ganesh has two houses, both of which are self-occupied. The particulars of the houses for the P.Y.2015-16 are as under:
| Particulars | House I | House II |
| Municipal valuation p.a.
Fair rent p.a. Standard rent p.a. Date of completion Municipal taxes paid during the year Interest on money borrowed for repair of property |
1,00,000
75,000 90,000 31.3.1999 12% – |
1,50,000
1,75,000 1,60,000 31.3.2001 8% 55,000 |
Compute Ganesh’s income from house property for A.Y.2016 -17 and suggest which house should be opted by Ganesh to be assessed as self -occupied so that his tax liability is minimum.
Solution
Computation of income from house property of Ganesh for the A.Y.2016-17 Let us first calculate the income from each house property assuming that they are deemed to be let out.
| Particulars | Amount in Rs | ||
| House I | House II | ||
| Gross Annual Value (GAV) | |||
| ER is the GAV of house property
ER = Higher of MV and FR, but restricted to SR |
90,000 | 1,60,000 | |
| Less: | Municipal taxes (paid by the owner during the previous year) | 12,000 | 12,000 |
| Net Annual Value (NAV) | 78,000 | 1,48,000 | |
| Less: | Deductions under section 24
(a) 30% of NAV |
23,400 |
44,400 |
| (b) Interest on borrowed cap | – | 55,000 | |
| Income from house property | 54,600 | 48,600 | |
OPTION 1 (House I – self-occupied and House II – deemed to be let out)
If House I is opted to be self-occupied, the income from house property shall be –
| Particulars | Amount in Rs |
| House I (Self-occupied) | Nil |
| House II (Deemed to be let-out) | 48,600 |
| Income from house property | 48,600 |
OPTION 2 (House I – deemed to be let out and House II – self-occupied)
If House II is opted to be self-occupied, the income from house property shall be –
| Particulars | Amount in Rs |
| House I (Deemed to be let-out) | 54,600 |
| House II (Self-occupied)
(interest deduction restricted to Rs 30,000) |
-30,000 |
| Income from house property | 24,600 |
Since Option 2 is more beneficial, Ganesh should opt to treat House II as self -occupied and House I as deemed to be let out. His income from house property would be Rs 24,600 for the A.Y. 2016-17.
(vi) House property, a portion let out and a portion self-occupied
Illustration
Prem owns a house in Madras. During the previous year 2015-16, 2/3rd portion of the house was self-occupied and 1/3rd portion was let out for residential purposes at a rent of Rs 8,000 p.m. Municipal value of the property is Rs 3,00,000 p.a., fair rent is Rs 2,70,000 p.a. and standard rent is Rs 3,30,000 p.a. He paid municipal taxes @10% of municipal value during the year. A loan of Rs 25,00,000 was taken by him during the year 2012 for acquiring the property. Interest on loan paid during the previous year 2015-16 was Rs 1,20,000. Compute Prem’s income from house property for the A.Y.2016-17.
Solution
There are two units of the house. Unit I with 2/3rd area is used by Prem for self-occupation throughout the year and no benefit is derived from that unit, hence it will be treated as self – occupied and its annual value will be Nil. Unit 2 with 1/3rd area is let-out throughout the previous year and its annual value has to be determined as per section 23(1). Computation of income from house property of Mr. Prem for A.Y.2016-17
| Particulars | Amount in Rs | |
| Unit I (2/3rd area – self-occupied)
Annual Value |
|
Nil |
| Less: Deduction under section 24(b)
2/3rd of Rs 1,20,000 |
|
80,000 |
| Income from Unit I (self-occupied) | -80,000 | |
| Unit II (1/3rd area – let out)
Computation of GAV Step I – Compute ER ER = Higher of MV and FR, restricted to SR. However, in this case, SR of Rs 1,10,000 (1/3rd of Rs 3,30,000) is more than the higher of MV of Rs 1,00,000 (1/3rd of Rs 3,00,000) and FR of Rs 90,000 (1/3rd of Rs 2,70,000). Hence the higher of MV and FR is the ER. In this case, it is the MV. |
1,00,000 |
|
| Step 2 – Compute actual rent received/ receivable
Rs 8,000´12 = Rs 96,000 |
96,000
|
|
| Step 3 – GAV is the higher of ER and actual rent
received/receivable i.e. higher of Rs 1,00,000 and Rs 96,000 |
1,00,000
|
|
| Gross Annual Value (GAV) | 1,00,000 | |
| Less: Municipal taxes paid by the owner during the previous year
relating to let-out portion 1/3rd of (10% of Rs 3,00,000) = Rs 30,000/3 = Rs 10,000 |
|
10,000 |
| Net Annual Value (NAV) | 90,000 | |
| Less: Deductions under section 24
(a) 30% of NAV = 30% of Rs 90,000 |
27,000 |
|
| (b) Interest paid on borrowed capital (relating to let out portion)
1/3 rd of Rs 1,20,000 |
40,000 | 67,000 |
| Income from Unit II (let-out) | 23,000 | |
| Loss under the head “Income from house property” = Rs -80,000 + Rs 23,000 = -57,000 | ||