House Property Income Tax Filing in India,ITR filing services for house property income in India

House Property

House Property

Meaning of House Property :-

House property consists of any building or land appurtenant thereto of which the assesse is the owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the building. But such land is to be distinguished from an open plot of land, which is not charged under this head but under the head, Income from Other sources or Business Income, as the case may be. Besides, house property includes flats, shops, office space, factory sheds, agricultural land and farm houses. Further, house property includes all type of house properties i.e., residential houses, warehouse, cinema building, workshop building, hotel building, etc.

income tax rules for new financial year

 

Essential conditions for taxing income under this head

Income from house property is taxable in the hands of its legal owner in whose name the property stands. “Owner? for this purpose means a person who can exercise the rights of the owner not on behalf of the owner but in his own right. A person entitled to receive income from a property in his own right is to be treated as its owner, even if no registered document is executed in his name.

The following three conditions must be satisfied before the income of the property can be taxed under the head “Income from House Property”:

  • The property must consist of buildings and lands appurtenant thereto;
  • The assesse must be the owner of such house property;
  • The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax.

Ownership includes both free-hold and lease-hold rights and also includes deemed ownership

 

Tax Chargeability

The annual value of property consisting of any building or lands appurtenant thereto of which the assesse is the owner shall be subject to Income-tax under the head, “Income from House Property” after claiming deduction under Sec. 24, provided such property or any portion of such property is not used by the assesse for the purpose of any business or profession, carried on by him, the profits of which are chargeable to Income-tax.

 

Deductions from Income from House Property

Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:-

  1. Standard deductions :-  From the net annual value computed, the assesse shall be allowed a standard deduction of a sum equal to 30% of the net annual value.
  2. Interest on borrowed capital :-  Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as a deduction.

The amount of interest payable yearly should be calculated separately and claimed as a deduction every year. It is immaterial whether the interest has been actually paid or not paid during the year.

Interest attributable to the period prior to completion of construction: It may so happen that money is borrowed earlier and acquisition or completion of construction takes place in any subsequent year. Meanwhile interest becomes payable. In such a case interest paid/payable for the period prior to the previous year in which the property is acquired /constructed will be aggregated and allowed in five successive financial years starting from the year in which the acquisition/construction was completed.

Interest will be aggregated from the date of borrowing till the end of the previous year prior to the previous year in which the house is completed and not till the date of completion of construction.

 

What is Annual Value?

Income from house property is taxable on the basis of annual value. Even if the property is not let out, notional rent receivable is taxable as its annual value.

The annual value of any property shall be the sum for which the property might reasonably be expected to be let out from year-to-year. In determining the annual value there are four factors which are normally taken into consideration. These are:

  • Actual rent received or receivable,
  • Municipal value,
  • Fair rent of the property,
  • Standard rent.

Computation of annual value of a property

As per the Act the annual value is the value after deduction of Municipal taxes, if any, paid by the owner. But for the sake of convenience, the annual value may be determined in the following steps:

Step I: Determine the gross annual value.

Step II: From the gross annual value compared in Step I, deduct Municipal tax actually paid by the owner during the previous year.

The balance shall be the net annual value which, as per the Income-tax Act is the annual value.

 

The annual value has to be determined for different categories of properties. These categories are:

Category A : House property - Let out throughout the previous year.

Step 1: Determining the gross annual value:

According to Sec. 23(1), the annual value of any property shall be deemed to be:-

       (a) The sum for which the property might reasonably be expected to let out from year-toyear (i.e., expected rent); or

       (b) Where the property or any part of the property is let out and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause a), the amount so received or receivable, i.e., the actual rent.

For calculating Gross Annual Value of the property which is let out, first calculate expected rent as per clause (a) above and then compare the same with the actual rent received or receivable as per clause (b).

If the actual rent so received or receivable as per clause (b) is more than the expected rent computed as per clause (a), the Gross Annual Value shall be the actual rent so received or receivable.

On the other hand, if the actual rent so received or receivable is less than the expected rent, then the Gross Annual Value shall be expected rent so computed.

How to calculate expected rent :  The higher of the following two is taken to be the expected rent:

  • Municipal Valuation;
  • Fair Rental Value.

Step 2: Taxes levied by any local authority in respect of the property, i.e., Municipal taxes (including taxes levied for services) to be deducted. Municipal taxes, etc., levied by local authority are to be deducted from the gross annual value calculated as above, if the following conditions are fulfilled:

           (a) The Municipal taxes have been borne by the owner, and

           (b) These have been actually paid during the previous year.

Therefore, deduction for Municipal taxes, etc., levied by any local authority is allowed if they are borne and actually paid by the owner. It must be noted that the taxes are allowed as deduction only in the previous year in which these are paid. Municipal taxes, etc., due but not paid shall not be allowed as deduction. However, Municipal taxes, etc., paid during the previous year are allowable even if they relate to past years or future years.

 

Category B :- House Property- Let out and was vacant during the whole or part of the previous year:

According to Sec. 23(1), the annual value of such house property shall be deemed to be:-

        (a) The sum for which the property might reasonably be expected to let out from year to year, i.e., the expected rent; or

        (b) Where the property or any part of the property is let out and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in                  clause (a) , the amount so received or receivable, i.e., the actual rent; or

        (c) Where the property or any part of the property is let out and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent                      received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable, i.e., the actual rent, if any.

From the perusal of the above, the following two scenarios emerge:-

Scenario 1:

Where the property is let out and was vacant for part of the year and the actual rent received or receivable is more than the sum determined under clause (a) in spite of vacancy period.

In this case, clause (c) shall not be applicable as it will be applicable only when actual rent received or receivable is less than the sum referred under clause (a). Hence, the gross annual value in this case shall be:

  • The sum for which the property might reasonably be expected to be let out from year to year; or
  • Actual rent received or receivable, whichever is higher.

Scenario 2:

Where the property is let out and was vacant for whole or part of the year and the actual rent received or receivable owing to such vacancy is less than the sum determined under clause (a).

The annual value of the property shall be determined under this situation if all the following 3 conditions are satisfied:

      (a) The property is let out;

      (b) It was vacant during the whole or part of the previous year;

      (c) Owing to such vacancy, the actual rent received or receivable is less than the value determined under clause Sec. 23(1)(a).

In this case, both clause (a) and clause (b) shall not be applicable but clause (c) shall be applicable and the gross annual value shall be the actual rent received or receivable.

 

Category C :- House Property- Let out for part of year and rest of the year occupied for own residence

Where a house property is let out for part of the year and rest of the year occupied for own residence, its annual value shall be determined as per the provision of Sec. 23(1) relating to let out property. In this case the period of occupation of property for own residence shall be irrelevant and the annual value of such house property shall be determined as if it is let out for part of the year. Hence, the expected rent as per Sec. 23(1) (a) shall be taken for full year but the actual rent received or receivable shall be taken only for the period it is let out and the gross annual value shall be higher of these two.

 

Schedule House Property of the income-tax return form in which details of income from house property are to be given is given below:

     
a) Annual letable value/rent received or receivable (higher if let out for whole of the year, lower if let out for part of the year) 1a
b) The amount of rent which cannot be realized 1b
c) Tax paid to local authorities 1c
d) Total (1b+1c) 1d
e) Balance (1a-1d) 1e
f) 30% of 1e 1f
g) Interest payable on borrowed capital 1g
h) Total (1f+1g) 1h
i) Income from house property 1 (1e-1h) 1i