Income from House Property
This domain tests the annual value of property, statutory deductions and the restrictive treatment of interest, especially for self-occupied houses.
Core rules
- Charge arises on buildings or land appurtenant to buildings owned by the assessee and not used for business or profession. Rent from a let-out property is taxed under this head; a self-occupied house has nil annual value subject to conditions.
- Gross annual value is the higher of expected rent and actual rent received or receivable, subject to vacancy and unrealised rent adjustments. Municipal taxes actually paid by the owner are deducted to arrive at net annual value.
- A flat 30% of net annual value is deducted for repairs, collection, insurance and other expenses. No separate bills are required.
- Interest on borrowed capital is deductible. For a self-occupied house, the interest cap is generally ₹2 lakh where the loan is for acquisition or construction and conditions are met. For a let-out house, interest is not capped, but house-property loss set-off against other heads is restricted to ₹2 lakh in a year.
- Pre-construction interest is deductible in five equal annual instalments from the year of completion or acquisition.
Worked example
A let-out house has rent received ₹3,00,000, municipal taxes paid ₹20,000 and loan interest ₹2,50,000. Net annual value is ₹2,80,000; the 30% deduction is ₹84,000; income before interest is ₹1,96,000. After interest, the loss is ₹54,000, which can be set off against other heads subject to the ₹2 lakh overall house-property loss limit.
Traps
Compute 30% on net annual value after municipal taxes, not on rent; do not deduct interest on a self-occupied house without the loan and completion conditions; distinguish pre-construction from post-construction interest; remember deemed let-out and vacancy rules.