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Quick Review of the Chapter

Sections	Particulars
22	Income from House Property - Chargeability and Basis of Charge
23(1)(a), (b) & (c)	Annual Value, how determined
Explanation to 23(1)	Treatment of unrealized rent
24	Deductions from income from house property
25	Interest when not deductible from "Income from House Property
25A & 25AA	Special provisions for cases where unrealized rent allowed as deduction is realized subsequently
25B	Special provisions for arrears of rent received
26	Property owned by co-owners
27	Deemed ownership

Chargeability [Section 22]

The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner shall be subject to Income-tax under the head 'Income from house property' after claiming deduction under section 24 provided such property, or any portion of such property is not used by the assessee for the purposes of any business or profession, carried on by him, the profits of which are chargeable to Income-tax.

Essential conditions for taxing income under this head
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 assessee 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 him, the profit of which are chargeable to tax.
  

Deemed ownership [Section 27]

As per section 27, the following persons though not the legal owners of a property are deemed to be the owners for the purposes of sections 22 to 26:

• Transfer to a spouse.
  

• Transfer to a minor child except a minor married daughter.
  

• Holder of an impartible estate.
  

• Member of a Co-operative Society, etc.
  

• Person in possession of a property in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act.
  

• Person having right in a property for a period not less than 12 years except the case where any right by way of a lease is acquired from month to month basis or for a period not exceeding one year.
  

Cases of Composite Rent:
In certain cases, the owner charges rent from the tenant not only on account of rent for the house property but also on account of service charges for various facilities provided with the house. Such rent is known as composite rent. The said composite rent can fall under 2 categories:

• composite rent on account of rent for the property and service charges for various facilities provided alongwith the house like lift, gas, water, electricity, watch and ward, air conditioning etc.
  

• composite rent on account of rent for the property and the hire charges of machinery, plant or furniture belonging to the owner.
  

When income from house property is not charged to tax
In the following cases income from property is not charged to tax:

• Farm house
• Property held for charitable purposes
• Property used for own business/profession
• Self-occupied house
• Property of registered trade union/local authority
• Palace of ex-ruler
  

DETERMINATION OF ANNUAL VALUE

Computation of annual value of a property [Section 23(1)]
As per the Act the annual value is the value after deduction of municipal taxes, if any, paid by the owner. But for sake of convenience, the annual value may be determined in the following two steps:

Step I: Determine the gross annual value.

Step II: From the gross annual value computed in step I, deduct municipal tax paid by the owner during the previous year.

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

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

• House property which is let throughout the previous year.
  

• House property which is let and was vacant during the whole or any part of the previous year.
  

• House property which is part of the year let and part of the year self-occupied.
  

• House property which is self-occupied for residential purposes or could not actually be self occupied owing to employment at any other place.
  

(A) House property which is let throughout the previous year

Step 1: Determine the gross annual value which is higher of two

• (a) the sum for which the property might reasonably be expected to let from year to year which is higher of
• • Municipal Valuation
  • Fair Rental value. ;
    

But the value does not exceeds Standard Rent or

• (b) where the property or any part of the property is let 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.

Conclusion: First step is to calculate the Gross Annual Value which will be maximum of Municipal Value or Fair Rental Value, but restricted to the standard rent. However if the actual rent received or receivable exceeds such amount then the actual rent so received/receivable shall be the Gross Annual Value.

Question 1: R owns six houses in Delhi, details of which are as under, compute the gross annual value of the above houses:

Particulars	I	II	III	IV	V	VI
Municipal Value	20,000	24,000	36,000	42,000	48,000	45,000
Fair Rental Value	24,000	24,000	40,000	42,000	50,000	50,000
Standard Rent	N.A.	24,000	50,000	30,000	N.A.	48,000
Actual Rent/Annual Rent	18,000	36,000	48,000	36,000	54,000	42,000
Gross Annual Value

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

• the municipal taxes have been borne by the owner, and
• these have been actually paid during the previous year

The value arrived at after deducting the municipal taxes, if any, may be referred to as the Net Annual Value (Annual value as per Income-tax Act).