Income from House Property

Income from house property consists of buildings and/or lands appurtenant thereto. However, income only from vacant plot or land is treated as ‘income from other sources’. Following should be noted.

In case of let out property, income will be ‘fair annual value’ i.e. sum reasonably expected to be received from letting or ‘actual rent received’ whichever is higher. Deduction is allowable for unrealized rent.

‘Annual Value or Property’ is the sum for which the property could reasonably be expected to let from year to year. Municipal Valuation of ratable value can be taken as one of the tests to determine bonafide value of the property. If the house property is given on rent, actual rent received will be the ‘annual value of the house property’.

From the ‘Annual Value of House Property’, in case of let out property, following will be allowed as deduction – (a) Municipal tax – The deduction will be permitted on actual payment basis (b) Standard deduction of 30% of (gross annual value less municipal tax) [section 24(a) of Income Tax Act] (c) Interest on capital borrowed to acquire or construct the house property subject to limit explained below [section 24(b) of Income Tax Act]

Annual Value of a self-occupied property is taken as ‘Nil’, if it is not let out. In such cases, none of the aforesaid expenses are allowed as deduction. However, if the self-occupied property is acquired or constructed or repaired from borrowed funds, interest payable on such funds upto Rs 1,50,000 per annum is allowed as deduction. Interest on borrowed capital for repairs is allowable as deduction upto Rs 30,000.

Naturally, this will be a ‘loss’ as the annual value of self occupied property is ‘Nil’. This ‘loss’ can be set off against any other income of the assessee. In other words, if funds are borrowed to acquire or construct or repair self-occupied property, interest upto Rs 1,50,000/30,000 paid per annum is allowable as deduction from any other income.

House property or any portion thereof occupied by the owner for purpose of his business or profession is excluded and any expense of current repairs, municipal taxes, depreciation on property etc. is allowable as business expenditure.