Income from House Property

Income from house property is one of the five heads of income under the Income Tax Act of India. It includes income earned by an individual from a property that he or she owns. The income from house property is taxable under the head “Income from House Property” in the individual’s income tax return. The income can be earned from letting out a property on rent or by owning a self-occupied property.

Income from House Property is one of the five heads of income under the Indian Income Tax Act, 1961. The following is a brief explanation of each section under Income from House Property:

• Section 22: Chargeability of Income from House Property; This section deals with the chargeability of income from house property to tax. It specifies that the income shall be chargeable to tax under this head if the taxpayer owns a house property that is not used for business or profession.
• Section 23: Determination of Annual Value; This section specifies the method for determining the annual value of a house property for the purpose of calculating the taxable income. The annual value is calculated as the potential rental value of the property, less the amount of municipal taxes paid.
• Section 24: Deductions from Income from House Property; This section provides for various deductions that can be claimed from the income from house property, such as standard deduction of 30% of the annual value, interest paid on housing loans, and municipal taxes paid during the year.
• Section 25: Arrears and Advance Rent; This section deals with the treatment of arrears of rent and advance rent received by the taxpayer. It specifies that the arrears of rent shall be charged to tax in the year of receipt, while the advance rent shall be taxed in the year to which it relates.
• Section 27: Deemed Ownership of House Property; This section deals with the tax treatment of deemed ownership of a house property, such as in the case of a property owned by a spouse or a minor child. It specifies that the income from such properties shall be taxed in the hands of the taxpayer who is deemed to be the owner.
• Section 50C: Deemed Sale Consideration; This section deals with the computation of capital gains on the sale of a property. It specifies that if the sale consideration declared by the taxpayer is less than the stamp duty value of the property, then the stamp duty value shall be deemed to be the sale consideration for the purpose of computing capital gains.

The income from house property is calculated as the annual value of the property, which is the amount for which the property might reasonably be expected to be let out from year to year. This value is determined by applying various deductions and exemptions provided under the Income Tax Act.

The income from house property is divided into the following sections:

• Gross Annual Value: The gross annual value of a property is the actual amount of rent received or receivable from the property during the financial year. If the property is self-occupied, the gross annual value is considered as zero.
• Municipal Taxes: Municipal taxes, such as property tax, paid by the owner of the property during the financial year can be deducted from the gross annual value to arrive at the net annual value.
• Standard Deduction: A standard deduction of 30% of the net annual value can be claimed as a deduction under Section 24(a) of the Income Tax Act. This deduction is allowed to cover expenses like repairs, maintenance, and other expenses incurred to earn the rent.
• Interest on Home Loan: If the property is purchased with a home loan, the interest paid on the home loan can be claimed as a deduction under Section 24(b) of the Income Tax Act. The maximum deduction allowed is up to Rs. 2 lakhs for a self-occupied property and the actual interest paid for a let-out property.
• Loss from House Property: If the deductions exceed the gross annual value, the excess is considered as a loss from house property. This loss can be set off against income from other heads, subject to certain conditions, and carried forward for up to 8 years.

Question:

Mr. B owns a house property which is let out for rent. The annual rent received from the property is Rs. 3,00,000. The municipal taxes paid during the year were Rs. 15,000 and the annual repair expenses were Rs. 40,000. Calculate the net taxable income from house property for the assessment year 2022-23.

Solution:

The calculation of net taxable income from house property for Mr. B is shown. The annual rent received from the property is Rs. 3,00,000, and after deducting the municipal taxes paid of Rs. 15,000, the net annual rent comes to Rs. 2,85,000. A standard deduction of 30% of the net annual rent is allowed, which amounts to Rs. 85,500 in this case. This deduction is made for repair and maintenance expenses, and other expenses related to the property. The net taxable income from house property is the difference between the net annual rent and the standard deduction, which comes to Rs. 1,99,500 in this case. This amount will be subject to income tax, as per the applicable rates and provisions of the Income Tax Act.