Computation of Income from House Property
Income from house property is computed by determining the annual value of the property and allowing deductions such as municipal taxes, standard deduction, and housing loan interest. Properties are categorized as let-out, self-occupied, or deemed let-out.
Computation Process
- Categories:
- Let-Out Property: Annual value is based on the higher of expected rent or actual rent received.
- Self-Occupied Property: Annual value is nil; deductions allowed only for housing loan interest (up to Rs. 2,00,000).
- Deemed Let-Out Property: Annual value is computed based on expected rent.
- Annual Value Determination:
- Factors include municipal value, fair rent, standard rent (if Rent Control Act applies), and actual rent received or receivable.
- For vacant properties, actual rent may be deemed as annual value if it is lower than the expected rent due to vacancy.
- Rent which an owner cannot realise from his tenant (i.e., unrealised rent) is allowed to be deducted from actual rent.
- Deductions:
- Municipal Taxes: Deducted if the owner pays during the relevant year.
- Standard Deduction: 30% of net annual value (i.e., Annual value minus Municipal Tax).
- Interest on Home Loan: Full interest for let-out properties; limited to Rs. 30000 or Rs. 2,00,000, as the case may be, for self-occupied properties.
Special Scenarios
- Self-occupied house property: If the property is self-occupied by the owner or cannot be occupied by him for any reason, it is treated as self-occupied property. The annual value of any two of such properties can be considered nil.
- Co-ownership: Income is apportioned based on definite shares, with each co-owner entitled to deductions.
- Stock-in-Trade: Annual value is considered ‘nil’ for up to two years post-construction.
Tax Treatment of Losses
- Loss under this head (up to Rs. 2,00,000) can be set off against other heads of income. Unabsorbed losses are carried forward for 8 years. The loss under the head house property can be carried forward even if the Income-tax return is filed after the due date.
- If the assessee opted for the default tax regime under section 115BAC. In that case, his total income shall be computed without allowing any loss under the head “Income from house property” to be set off against income from other heads.
Recovery of Unrealized Rent
Arrears or unrealized rent recovered later is taxable in the year of receipt, with a 30% deduction allowed.