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Income from house property is a separate head. It applies to a building, or land appurtenant to a building, of which the taxpayer is owner. It is not confined to landlords. A self-occupied residence has an annual value, which the statute treats as nil in the ordinary case, and may still give rise to a deduction for housing-loan interest if the older tax regime is selected. A let-out property has an annual value based on rent, from which municipal taxes paid by the owner, a standard deduction of 30 per cent, and interest on borrowed capital are subtracted. This article describes that computation. The following article compares typical ownership situations.
For a property let out, the gross annual value is determined by comparing the actual rent received or receivable with the reasonable expected rent, subject to the provisions for vacancy. Municipal taxes paid by the owner during the year are deducted to arrive at the net annual value. For a property that is self-occupied, or treated as self-occupied within the number of properties the statute allows to be so treated, the annual value is taken as nil.
From the net annual value of a let-out property a deduction of 30 per cent is allowed. It is a statutory allowance for repairs and similar outgoings. It does not depend on producing invoices for that amount. It is not available against a self-occupied property whose annual value is nil, because 30 per cent of nil is nil.
Interest on capital borrowed for acquisition, construction, repair, renewal or reconstruction is deducted in computing income from the property. For a let-out property the interest is deducted in full in arriving at the income of that head, subject to the treatment of any resulting loss. For a self-occupied property the deduction is available only under the older regime, and it is limited to ₹2 lakh a year, inclusive of the instalment of pre-construction interest that the statute spreads over five years. If construction is not completed within the period prescribed, the limit is lower. Under the default new regime, interest on a loan for a self-occupied house is not deducted.
A loss under this head, where the statute still permits it to arise, may be set off against other income only to the extent and for the number of years the law allows. Under the new regime the set-off of a house-property loss against salary is generally not available. Readers who rely on that set-off as part of their older-regime arithmetic should confirm the rule for the year of filing.
Where shares are definite and ascertainable, each co-owner is assessed on that share. A co-owner who is also a co-borrower may claim interest on the portion of the loan that co-owner services, within the cap that applies to a self-occupied property. Being named only on the deed, or only on the loan, is not sufficient. Both ownership and borrowing must be present, and the payments should be consistent with the claim.
Municipal tax is deductible only when the owner has paid it. Tax paid by the tenant, or tax outstanding at the year end, does not reduce the owner’s net annual value for that year.
The Iyer family in Vellore let one floor of their house and occupied the other. They reported nothing, on the view that they “lived in the same building.” The let-out floor is computed as a let-out property. Once municipal tax, the 30 per cent allowance and the interest attributable to that floor were applied, the taxable income from that head was modest. It was not zero. Thereafter they reported it each year as a matter of course.
House-property income is a statutory computation, not a cash account. Rent received is the starting point for a let-out property. It is not the taxable figure.
Claiming interest of ₹2 lakh on a self-occupied house while remaining on the new regime. The deduction and the regime must belong to the same return.