Income from House Property-Deemed Income, Exemption, Deductions, Calculation of Tax

House property income is taxable under Income Tax Act. But in some cases this may be treated as business income. Income from house property will also be calculated on property have deemed ownership. Income to be taxed under the head Income from House property, the following conditions must be satisfied.


- The property must be consists of building or land adjacent thereto
- The property must be owned by the Assessee
- The property must not be used for business or profession of the Assessee

Any income from a property which is not owned by the assessee will not be treated as Income from House Property.

Deemed Ownership and Income from Property
In some cases the assesse is deemed as owner of the property, though not the owner of the property. In such cases the Assessee will be treated owner of the House property and the income will be treated as Income from House Property.

- Individual who transfers any property for inadequate consideration or who gifts that property to his spouse or to a minor child other than a married daughter will be treated as deemed owner of that property. Legally the owner of the property may be minor child or spouse, but the income from that property will be treated as income of the transferor of the property.

- Holder of an impartable property will be treated as the owner of the entire property.

- Member of a cooperative society, company or other association of persons to whom a building has been allotted under a house building scheme of the society will also be treated as deemed owner of that property.

- AS per section 53A of the Transfer of property act deals with where though the agreement for buying of property has not been registered with the appropriate authority, the person who has purchased the property will be treated as the owner of the property. In such cases, persons who have satisfied the provisions of section 53A of the Transfer of Property Act will be treated as deemed owner of that property.

-  Income from long term lease of property will be treated as income from House property and is taxable in the hands of the person who acquired right by way of long term lease.


Income exempted from House Property
Income from House Property which is exempt is not taxable under the Head Income from House property, even though there is income from House Property. The following incomes are exempted:

- Any income derived from Farm House used for agricultural purpose
- Any income earned from House Property by Trade union or association of trade union
- Income from House Property earned by a Political Party
- Income derived from the property held for charitable purpose
- Income from Property used for own business or profession. Any income generated from such property will be treated as business income.
- One property used by an Individual assessee or HUF for the purpose of self occupation only and not for renting out to any person will be treated as exempted property. Any income from that property will not be treated as taxable income.

Value of House Property
The properties may be classified as:


Self Occupied Properties
If an individual or HUF assessee has only one property, that property will be treated as self occupied and there will not be any taxable income in respect of such property.
Let out properties or Deemed to be let out properties
In case the assessee owns more than one property all of which are not rented out but are self occupied, then the assessee at his option may choose any one property as self occupied by him and the remaining properties though not actually let out will be deemed to be let out. The notional rental value will be treated as taxable income in the hands of the owner of such property.

Taxable Income
The highest of the following will be treated as taxable income:
- Municipal Rental Value
- Fair Rental Value of similar property in similar locality
- If the above two exceeds the standard rent of the property determined in accordance with the Rent Control Act applicable at the concerned locality, then the standard rent will be treated as taxable rental value of such property.


Taxable Income
The highest of the following will be treated as taxable income:
- Municipal Rental Value
- Fair Rental Value of similar property in similar locality
- If the above two exceeds the standard rent of the property determined in accordance with the Rent Control Act applicable at the concerned locality, then the standard rent will be treated as taxable rental value of such property.

Taxable income in case of let out properties
In case of let out properties, amount of rent received will be treated as taxable rental income of the property. The below mentioned provisions should also be considered while calculating taxable income from let out property.

Taxable rental value will be the Highest of the following:

- Municipal Rental Value of the Property
- Fair Rental Value of Similar Property in a similar locality
- Rent actually received by the assessee in respect of the property in given previous year

It is to be noted that if Rent Control Act is applicable in the locality where the property is situated, then the taxable value cannot exceed the standard rent fixed in accordance with the Rent Control Act except where the rent actually received exceeds the standard rent.

Deductions available to the Assessees for calculation of Income from House Property
The following deductions are available to assesses to calculate Income from House Property.

Section 23 - Municipal Taxes
Actual amount of Municipal Taxes paid

Section 24 - Expenses
The following expenses will be allowed to deduct from Net amount after deducting Municipal Taxes

(i) Repairs and collection charges
The deduction available is 30% of the net adjusted annual rental value, irrespective of whether the assessee has actually spent it or not. But no deduction will be available to the owner of the property if the repair expenses are born by the tenant.

(j)  Interest on Borrowed Money
Interest paid or payable on borrowed money for purchase, construction, repair, renewal or reconstruction of house property will be allowed as deduction. In case of self occupied property the maximum deduction will be restricted to Rs. 30000/- and if the borrowing is made for acquisition or construction of house property after 1st April 1999 and the acquisition or construction is completed within 3 years, then the maximum amount will be Rs. 1,50,000/-.

If the house property has been acquired or constructed with borrowed money, the interest on such borrowed money for the period prior to the previous year in which the property had been acquired or constructed shall be deductible in five equal annual installments starting from the previous year in which the house property has been acquired or constructed.

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