Income from house property is chargeable under Section 22 of the Income tax Act, 1961
Income from building or house property is only taxable for owner of a such building or property which is not used for business or profession. Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted.
Thus these three conditions must be fulfilled for charging Income under section 22:
the property should consist of any building or land appurtenant thereto
The assessee must be the owner of the property.
The property should not be used by the owner for the purpose of any business or profession Carried on by him.
Owner of House Property
- Owner can be legal or deemed
- Income from subletting is not chargeable under this head.
Reference: Income from house property under Section 22
The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property
Deemed Ownership-Section 27:
In the following cases for the purpose of computing income from House Property (sec-27) the persons are deemed owners of the House Property:
- An Individual, who transfers house property to his or her spouse (not being a transfer with an agreement or to his minor child (not being a married daughter) is treated as a deemed owner. The holder of an impartibly estate is called deemed owner.
- A member of a co-operative society, company or other association of persons, to whom a building part or leased under a house building scheme of the society, association of person or company, is treated as deemed owner.
- Or a person who comes to have control over the property in part performance of a contract.
Determination of Income from house property under section 23 of the Income Tax Act, 1961.
Basis of computing income from
Income from let out house property:
Gross annual value
Less : Municipal taxes ________________
Net annual value
Less: Deduction under sec. 24
Income from house property
Gross Annual value section 23(1)-
The gross annual value is determined as follows-
Find out reasonable expected rent
Find out rent actually received or receivable after excluding unrealized rent but before deducting loss
Find out which one is higher : I OR II
Find out loss because of vacancy
III MINUS IV is gross annul value
A property will be considered SOP and above computation will be allowed if following conditions satisfied:
- The property is not actually let out during whole or any part of the previous year.
- No other benefit is derived there from.
How to Claim deduction for unrealised Rent
As per Income Tax Rule 4, owner can claim such amount as deduction under section 23 which is payable and unpaid by the tenant and tenancy is real .i.e bona fide, defaulting tenant has vacated or steps have been taken to compel him to vacate the property, the defaulting tenant is not in occupation of any other property of the assessee and assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless
Reference: Annual value how determined under section 23 of Income Tax Act, 1961
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; 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; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :
Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.
Explanation.—For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.
(2) Where the property consists of a house or part of a house which—
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,
the annual value of such house or part of the house shall be taken to be nil.
(3) The provisions of sub-section (2) shall not apply if—
(a) the house or part of the house is actually let during the whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner.
(4) Where the property referred to in sub-section (2) consists of more than one house—
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.
Reference: Unrealised rent under Rule 4 of Income Tax Rules
4. For the purposes of the Explanation below sub-section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,—
(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
(c) the defaulting tenant is not in occupation of any other property of the assessee;
(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.