Income from House Property and Business/Profession
What this domain tests
This domain covers the annual value of property, the 30% standard deduction, interest on borrowed capital, and the computation of business or professional profits. It also tests presumptive taxation, which is important for small taxpayers.
Core rules for house property
- Gross annual value is the higher of municipal value, fair rent, and standard rent, but cannot exceed actual rent received or receivable. Unrealised rent and vacancy allowance may reduce it.
- Municipal taxes actually paid by the owner are deducted to arrive at net annual value.
- A flat 30% of net annual value is allowed as a standard deduction, irrespective of actual expenditure.
- Interest on borrowed capital is deductible. Pre-construction interest is allowed in five equal instalments from the year of completion. Under the old regime, self-occupied property interest is capped at ₹2,00,000; under the new regime, no interest deduction is allowed for a self-occupied house.
Core rules for business/profession
- Profits are computed by adjusting the net profit in the profit and loss account for allowable and disallowable items.
- Depreciation is allowed on assets used for the business, subject to the block-of-assets rules.
- Presumptive scheme section 44AD: eligible small businesses may declare 8% of turnover (6% for digital receipts) as income, subject to turnover limits. Section 44ADA allows professionals to declare 50% of gross receipts.
Worked example
A let-out house has actual rent of ₹3,00,000; municipal taxes paid by the owner are ₹20,000; interest on loan is ₹1,50,000. Net annual value = ₹3,00,000 − ₹20,000 = ₹2,80,000. Standard deduction = 30% × ₹2,80,000 = ₹84,000. Income from house property = ₹2,80,000 − ₹84,000 − ₹1,50,000 = ₹46,000. Reasoning: deduct municipal taxes first, then the statutory 30%, and only then interest.
Traps
The 30% deduction is on net annual value, not on rent. Municipal taxes are deductible only if paid by the owner. Do not claim self-occupied interest under the new regime. Presumptive income cannot be lower than the statutory percentage without proper conditions.