Chapter 31

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Income from House Property

Introduction

nder the Income Tax Act, what is taxed under the head House Property is the inherent capacity of the property to earn income called the Annual Value of the property. The annual value of taxable property is arrived at in the manner prescribed. Computation Of Annual Value / Income from House Property It is the highest of The sum for which the property might reasonably be expected to be let from year to year. Rent received or receivable It may be noted that if the let-out property was vacant for whole or any part of the previous year and owing to such vacancy the actual rent received or receivable is less than the sum referred above, then the amount actually received/receivable shall be taken into account while computing the Annual Value From this value we deduct the amount paid as municipal tax (including service tax), during the year. From this, we calculate Annual Value by deducting deductions available under section 24. Deductions under section 24 The deductions listed under section 24 are exhaustive deductions. It means only the deductions as prescribed are allowed and no other deduction is allowed from Annual Value. The deductions allowed are: A sum equal to 30% of annual value; Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. The deduction on account of interest is restricted to Rs 30,000 per annum in two cases given below. However, this can be increased to Rs. 1,50,000 if the property was acquired or constructed with capital borrowed on or after the 1st Day of April 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed. It is the requirement of this section that the certificate is required to be obtained from the person to whom interest is payable on the capital borrowed, specifying the amount of interest payable for the purpose. This certificate is required to be furnished to tax authorities. Cases where Annual Value is taken as Zero In the following two cases the annual value is taken as Zero. Self occupied property or When a property can not be occupied by the owner due to his employment or business or profession at some other place where he has to reside in a building not belonging to him, subject to the fact that the property is lying vacant throughout the year. If there is more than one property falling in the above category, only one property, at the option of the assessee will be assessed at nil value and the remaining property (ies) would be assessed as if they had been let.

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This is an important concession for one house of the owner falling in one of the above two categories, as he can claim deduction on account of interest u/s 24 against nil annual value which may result in loss under the head house property ( if there is no other income under this head). This loss can reduce salary or other income. For getting effect of this deduction for tax deduction purpose, particulars are required to be given to Drawing and Disbursement officer of the employer in the prescribed forms.

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