Income from House Property

1. Sec. 22 — Charging Section

1.1 Two Conditions for Taxability

Rental Income (Annual Value) is taxable under the head "Income from House Property" if the following two conditions are satisfied:

There should be a House Property
The Assessee should be the owner of that house property

1.2 Definition of House Property

Definition House Property means building or land appurtenant thereto.

2. Types of House Property

2.1 Let-Out Property (LOP)

Property that is rented out to a tenant. Always taxable.

2.2 Self-Occupied Property (SOP)

SOP for Residence — Up to two SOPs are exempt. If more than two, remaining are treated as DLOP.

SOP for Business & Profession — Ignored under this head; income computed under PGBP.

2.3 Deemed Let-Out Property (DLOP)

SOPs beyond the permitted two are deemed to be let out and taxed accordingly.

flowchart TD A["Types of House Property"] A --> B["LOP\nLet-Out Property"] A --> C["SOP\nSelf-Occupied Property"] B --> D["Always Taxable"] C --> E["SOP — For Residence"] C --> F["SOP — For Business\n& Profession"] F --> G["Ignored"] E --> H["Two SOP"] E --> I["More than Two SOP"] H --> J["Exempt"] I --> K["Two SOP\n(Assessee's Choice)"] I --> L["Remaining SOPs"] K --> M["Exempt"] L --> N["DLOP\nDeemed Let-Out Property"]

3. Computation of Income from House Property

3.1 Computation Table

Particulars	SOP (Res.)	LOP	DLOP
↑ Municipal Value	—	xx	xx
│ Fair Rent	—	xx	xx
│ Whichever is Higher	—	xx	xx
↓ Standard Rent	—	xx	xx
↑ Expected Rent	—	xx	xx
│ Actual Rent	—	xx	—
Gross Annual Value (GAV)	—	xx	xx
Less: Municipal Taxes Paid	—	(xx)	(xx)
Net Annual Value (NAV)	—	xx	xx
Less: Deductions u/s 24
(a) Standard Deduction — 30% of NAV	—	(xx)	(xx)
(b) Interest on Loan	— / (xx)	(xx)	(xx)
Income from House Property	— / (xx)	xx	xx

3.2 Key Definitions

3.2.1 Municipal Value

Value of property as per municipality records.

3.2.2 Fair Rent

Rent of a similar property in the same locality. Also known as Reasonable Rent or Reasonable Letting Value.

3.2.3 Standard Rent

Rent as per the Rent Control Act. It is the maximum amount of rent that can be legally recovered by the owner from the tenant.

3.2.4 Actual Rent

Actual Rent = Rent Received (+) Rent Receivable (−) Unrealised Rent

3.2.5 Municipal Taxes

Tax recovered by Municipality / Local Authority / Gram Panchayat
Also known as House Tax / Property Tax / Local Tax
Allowed on payment basis — Paid: Allowed | Outstanding: Not Allowed
Allowed only if paid by the owner
If given on a percentage basis → calculated on Municipal Value

3.2.6 Interest on Loan

Allowed if loan taken for purchase, construction, repair, or renovation of house property
Loan may be from banks, financial institutions, trusts, friends, family, etc.
Allowed on due basis — Paid: Allowed | Outstanding: Also Allowed
Interest on Interest (Penal Interest) — Not allowed
Fresh loan taken to repay earlier loan (taken for HP purpose) — interest allowed
Interest paid outside India — not allowed if TDS not deducted on such interest
Pre-construction / Pre-acquisition Interest — allowed in 5 equal instalments from the year construction is completed

3.3 Gross Annual Value (GAV)

GAV is the higher of Expected Rent and Actual Rent for LOP. For SOP (Residence), GAV is taken as Nil.

3.4 Municipal Taxes Deduction

Municipal taxes are deducted from GAV to arrive at NAV, provided they are paid by the owner during the previous year (payment basis).

3.5 Net Annual Value (NAV)

NAV = GAV − Municipal Taxes Paid

NAV is the base on which deductions u/s 24 are applied. For SOP (Residence), NAV is Nil.

3.6 Deductions u/s 24

3.6.1 Standard Deduction — 30% of NAV

A flat deduction of 30% on NAV is allowed for repair, maintenance, and other expenses. This is allowed for LOP and DLOP only — not for SOP (Residence).

3.6.2 Interest on Loan

Interest on loan taken for purchase, construction, repair, or renovation of HP is deductible. Limits apply for SOP — refer Section 4 for full details.

4. Limit of Interest Deduction — u/s 24(b)

4.1 LOP / DLOP — No Limit

For Let-Out Property (LOP) and Deemed Let-Out Property (DLOP), the full interest on loan is allowed as deduction with no upper limit.

4.2 SOP — Aggregate Limit Applies

Case / Conditions	Interest Limit
LOP / DLOP	No Limit (Full Interest Allowed)
SOP (Residence) / 2 SOP	Aggregate Limit Applies
✓ Special Case	Max ₹ 2,00,000
Capital borrowed on or after 1 April 1999
+
Loan taken for acquisition or construction only
+
Acquisition / construction completed within 5 years from the end of the FY of borrowing
+
Lender's interest certificate to be furnished
✓ General Case	Max ₹ 30,000
Loan taken before 1 April 1999 for acquisition / construction
OR
Loan taken on or after 1 April 1999 for repair / renewal / reconstruction
OR
Acquisition / construction not completed within 5 years from end of borrowing FY

5. Unrealised Rent & Recovery of Unrealised Rent

5.1 Definition of Unrealised Rent

Actual Rent = Rent Received (+) Rent Receivable (−) Unrealised Rent

Unrealised Rent means rent which is not recovered by the owner from the tenant. It is treated like bad debts of rent.

5.2 Four Conditions of Rule 4

Unrealised rent is deductible while calculating Actual Rent only if all four conditions are satisfied:

Tenancy should be bonafide
Tenant should have vacated that house property
Such tenant should not occupy any other house property of the same assessee
Reasonable steps should have been taken for recovery of unrealised rent

Note As per ITR Form, unrealised rent can be reduced from Gross Annual Value (GAV).

5.3 Arrears of Rent

Arrears of Rent — Rent under dispute.

5.4 Sec. 25A — Recovery of Unrealised Rent & Arrears of Rent

5.4.1 Year of Taxability

Recovery is taxable in the year in which it is recovered, under the head House Property, whether or not the assessee is the owner of the property in that financial year.

Any expenditure incurred for such recovery shall be ignored.

5.4.2 Taxable Amount Formula

Taxable Amount = Recovery × 70% (30% Standard Deduction is allowed)

5.5 Other Expenses — Why Not Allowed

flowchart LR A["Repair & Maintenance"] B["Society Charges"] C["Parking Charges"] D["Insurance Charges"] E["Electricity & Water Charges"] F["Lift Charges, etc."] G["Not Allowed\n──────────────────\n30% Standard Deduction\non NAV is already given"] A --> G B --> G C --> G D --> G E --> G F --> G

6. Concept of Vacancy

When a let-out property is vacant for part of the year, the GAV is determined based on the relationship between Expected Rent (ER), Actual Rent (AR), and Vacancy Rent (VR).

6.1 Rule — ER ≤ AR + VR

6.2 Rule — ER > AR + VR

flowchart LR A["ER ≤ AR + VR"] --> B["GAV = AR + VR"] C["ER > AR + VR"] --> D["GAV = ER"]

6.3 Illustrations

6.3.1 Example 1

Monthly Rent = ₹ 20,000 p.m. | Expected Rent = ₹ 1,92,000 | Vacancy = 3 months

       ER           AR    +    VR
   1,92,000  ≤  1,80,000  +  60,000
                       ↓
           GAV = AR + VR = ₹ 2,40,000

6.3.2 Example 2

Monthly Rent = ₹ 3,000 p.m. | Expected Rent = ₹ 1,95,000 | Vacancy = 2 months

       ER           AR    +   VR
   1,95,000  >   30,000  +  6,000
                      ↓
           GAV = ER = ₹ 1,95,000

6.3.3 Example 3

Monthly Rent = ₹ 25,000 p.m. | Expected Rent = ₹ 3,00,000 | Vacancy = 3 months

       ER            AR    +    VR
   3,00,000  =  2,25,000  +  75,000
                       ↓
           GAV = ₹ 3,00,000

7. Concept of Partly Let-Out Property

7.1 Area-wise Division

If some area of a house property is let out and the remaining is self-occupied:

7.1.1 LOP Portion

The let-out portion is treated as LOP.

7.1.2 SOP Portion

The self-occupied portion is treated as SOP.

7.1.3 Items Divided on Area Basis

Municipal Value, Fair Rent, Standard Rent, Municipal Taxes, and Interest on Loan — all are divided between SOP & LOP on area basis.

Important Rule Actual Rent should never be divided — it is always for the LOP portion only.

7.2 Time-wise Division

If property is let out for some period and self-occupied for the remaining time, such property is treated as LOP only.

7.2.1 Even 1 Day = LOP

Rule If property is let out for even 1 day, the entire property is treated as LOP for the assessment.

8. Assessee Owns More than Two SOPs

8.1 Option Available to Assessee

Two of such house properties (at the option of the Assessee) are treated as SOP and remain exempt.

8.2 Remaining SOPs Treated as DLOP

All properties beyond the permitted two are treated as Deemed Let-Out Property (DLOP) and are taxable on their Expected Rent.

9. Concept of Joint Ownership (Co-ownership)

9.1 Computation of Income

Joint ownership (co-ownership) means property is owned by more than one person. Income from House Property is calculated normally as a whole first.

9.2 Division Among Co-owners

After computation, the total income is divided between co-owners in their respective ownership ratio.

9.3 Interest on Loan Limits for Each Co-owner

9.3.1 LOP / DLOP — No Limit

9.3.2 SOP — Per Owner Limit

Property Type	Interest Limit (Per Co-owner)
LOP / DLOP	No Limit
SOP	₹ 30,000 / ₹ 2,00,000 — applies to each owner individually

10. Concept of Composite Rent

10.1 Definition

Composite Rent = Rent of House Property + Rent of Other Assets & Amenities

10.2 Agreement Separable

10.2.1 HP Rent → IFHP

Rent attributable to the House Property is taxable under Income from House Property (IFHP).

10.2.2 Other Asset Rent → PGBP / IFOS

Rent attributable to other assets and amenities (furniture, lift, services, etc.) is taxable under PGBP / IFOS.

10.3 Agreement Not Separable

Total composite rent is taxable entirely under PGBP / IFOS.

10.4 Special Case

Special Note If letting of property is not feasible without the other asset, the total rent is taxable under Business / Profession or Other Sources — whether the agreement is separable or not.

Example: Hotel

11. Sec. 27 — Deemed Owner

The following persons are treated as Deemed Owners even though they may not be the legal owner:

11.1 Spousal Transfer

If any individual transfers house property to his/her spouse without consideration or for inadequate consideration → the transferor is treated as Deemed Owner.

11.1.1 Exception — Living Apart

Transfer in connection with living apart is exempt from this provision.

11.2 Transfer to Minor Child

If any individual transfers house property to a minor child (other than a minor married daughter) without consideration or for inadequate consideration → the transferor is treated as Deemed Owner.

11.3 Co-operative Society

In the case of a co-operative society, the shareholder is treated as Deemed Owner of the allotted property.

11.4 Holder of Impartible Estate

The holder of an impartible estate is treated as Deemed Owner of all properties in the estate.

11.5 Part Performance of Contract

In the case of immovable property, if possession is taken in part performance of a contract, the assessee is treated as Deemed Owner.

11.6 Long-Term Lease (> 12 years)

If property is acquired under a long-term lease of more than 12 years, the acquirer is treated as Deemed Owner.

12. Important Notes

12.1 Stock-in-Trade Property

Note 1 Where house property is held as stock-in-trade and not let out during the P.Y., the NAV shall be NIL for a period of 2 years from the end of the Financial Year in which construction was completed.

12.2 New Tax Regime u/s 115BAC

Note 2 If assessee pays tax under the default taxation regime u/s 115BAC, then Interest on Loan u/s 24(b) in respect of SOP (₹ 30,000 / ₹ 2,00,000) is NOT allowed.

12.3 Definition of SOP

Note 3 SOP means property which is occupied by the assessee for self-occupation or could not be occupied due to any reason.

12.4 SOP Exemption — Only for Individual & HUF

Note 4 SOP exemption is allowed only in the case of Individual & HUF.

12.5 Foreign Municipal Taxes

Note 5 Municipal taxes paid to a foreign municipality are also allowed as deduction if foreign house income is taxable in India.