INCOME FROM HOUSE PROPERTY

Income in the form of rent from house property is assessed under the head 'Income from
house property'. It is the annual rental value of a property which is subject to tax.
Therefore, an assessee having house property may become liable to pay tax under this
head, even if the actual rent received or receivable is less than the annual rental value.

Section 22 – Charging Section

Rental Income (Annual value) is taxable under the head income from house property if
following two conditions are satisfied:
1. There should be House property **
2. Assessee should be owner of that house property.
** House property means building or land appurtenant thereto.

Types of House Property

LOP (Let Out SOP (Self Occupied Property)

Proprty)

Always Taxable SOP For Resident SOP For Business

Ignore
Two SOP
More than 2 SOP

Two
SOP Remaining SOPs
Exempt
Exempt Demmed to be Let Out (DLOP)

• Municipal value: It means value of property as per municipality record.

• Fair Rent: It means rent of similar property in same locality. It is also known as
reasonable rent/reasonable letting value.
• Standard Rent: It means rent as per rent control Act; it is the maximum amount of
rent that can be legally recovered by Owner from tenant.
• Actual Rent: Actual Rent = Rent received (+) Rent receivable (-) unrealised rent.
• Municipal Taxes
o It means tax, which is recovered by Municipality, local Authority, gram
panchayat.
 o It is also known as house Tax, property tax, local tax etc.
o It is allowed on payment basis [paid - Allowed; o/s - Not allowed].
o It is allowed only if it is paid by owner.
o If municipal taxes are given on % age basis then it should be calculated on
municipal value.

Computation of Income from House Property

Particulars SOP LOP DLOP
Municipal Value - xxx xxx
Fair Rent - xxx xxx
Higher Above (Reasonable Rent) - xxx xxx
Standard Rent - xxx xxx
Expected Rent (Lower Above) - xxx xxx
Actual Rent - xxx xxx
Gross Annual Value (GAV) - xxx xxx
Less: Municipal Tax Paid - (xx) (xx)
Net Annual Value (NAV) - xxx xxx
Less: Deduction u/s 24
(a) Standard Deduction @30% - (xx) (xx)
(b) Interest on Loan -/(xx) (xx) (xx)
Income From House Property -/(xx) xxx xxx
Illustration
Mr. Bose has seven let out houses, the details of which are given below. Determine the
Annual Value of each house.

Particulars H1 H2 H3 H4 H5 H6 H7

Municipal Value 70,000 50,000 80,000 70,000 62,000 80,000 70,000

Fair Rent 82,000 58,000 74,000 82,000 66,000 70,000 82,000

Actual Rent 74,000 66,000 70,000 90,000 70,000 74,000 74,000

Standard Rent 60,000 70,000 80,000 70,000 80,000 82,000 90,000

Municipal Taxes Paid 4,000 6,000 5,000 5,000 5,000 5,000 2,000

Solution
Computation of Annual Value of Houses of Mr. Bose

Particulars H1 H2 H3 H4 H5 H6 H7

Gross Annual Value

Less: Municipal Tax

Net Annual Value

According to the provisions of the Income-tax Act, the Annual Value of a let-out property
is determined in the following manner:
1. Expected Rent (ER): Expected Rent is taken as the higher of the Municipal Value or the
Fair Rent, but it cannot exceed the Standard Rent (where Rent Control legislation
applies).
2. Gross Annual Value (GAV): The Gross Annual Value is the higher of the Expected Rent
or the Actual Rent Received or Receivable.
3. Net Annual Value (NAV): The Net Annual Value is arrived at by deducting Municipal
Taxes actually paid by the owner from the Gross Annual Value.
Illustration
Mr. Chandru has a building which is let out for a monthly rent of ₹ 10,000. Municipal
valuation of the building is ₹1,25,000 and the fair rental value is ₹ 12,000 per month.
Municipal taxes were in arrears for the past three years. On 31.3.2025 he paid ₹ 1,20,000
and cleared all the arrears of tax. Further, availing a reduction in tax offered by the local
authorities, he paid ₹ 30,000 being tax for three future years. Determine the annual value
of the building for the year 2024-25.
Solution

Particulars ₹

Gross Annual Value

Less: Municipal Tax

Net Annual Value

Unrealised rent
It means rent which is not recovered by owner from tenant. It is like Bad debts of rent, it
is deductible while calculating actual rent if following four conditions of Rule 4 are
satisfied.

• Tenancy should be bonafide.

• Tenant should have vacated that house property.
• Such tenant should not occupy any other house property of same assessee.
• Reasonable step should have been taken for recovery of unrealised rent.
Arrears of rent
Arrears of rent refers to the rent amount which was due in the earlier years but could not
be realized or collected, usually because of disputes between the owner and the tenant
or due to litigation
Recovery of un-realised rent & arrears of rent
Recovery is taxable in the year in which it is recovered, under the head house property,
whether the assessee is the owner of the property or not is that financial year. Any
expenditure incurred for such recovery shall be Ignored
Taxable Amount = Recovery x 70% [ 30% std deduction]
Interest on Loan

• Interest on loan is allowed as deduction, if loan is taken for the purpose of house
property) i.e. purpose, construction, repair, renovation.
• Loan may be taken from banks, financial institutions, trust, friends, family etc.
• Interest is allowed on due basis [ paid - Allowed; o/s - Allowed)
• Interest on Interest (Penal interest) is not allowed as deduction.
• Any fresh loan is taken for repayment of earlier loan & earlier loan was taken for
the purpose of house property then interest of fresh loan shall be allowed as
deduction.
• Interest paid outside India shall not be allowed as deduction if TDS not deducted
on such interest.
• Pre-construction/Acquisition interest: It means interest paid before the year in
which construction was completed. It is allowed in Five equal instalments from
the year in which construction was completed.
• Limit of Interest deduction
LOP/ DLOP No limit (Full
interest allowed)
SOP (Residence) 2 ➢ Special Case
SOP • Loan is taken on or after 200,000
1.4.1999 and
• Loan is taken for purchase or
construction of house
property
If loan is taken for construction,
then construction should be
completed within 5 years from the
end of the year in which loan was
taken
➢ General Case 30,000
• Loan taken before
1.4.1999 or
• Loan taken for repair
renewal
Illustration
Mr. Ebin owned a house property having municipal valuation of ₹ 1,45,000, fair
rental value ₹ 1,36,000 and standard rent ₹ 1,24,000. The building was let out on
a monthly rent of ₹ 8,000 up to 30th November 2024 and ₹ 14,000 per month after
 November. The property was transferred to Mr. Z on 31st January 2025. Mr. Ebin
has paid municipal taxes ₹ 3,333 during the year (half). The tenant also paid half
of the municipal taxes. Interest on loan payable for the year amounted to ₹ 24,000
but not paid till the end of the year 2024-25. Compute the taxable income from
house property in the hands of Mr. Ebin for the year 2024-25.
Illustration
Mr. Ganesh has a house property let out for a monthly rent of ₹ 9,000. The
municipal valuation of the house is ₹ 8,500 per month, which is the rent payable
under the Rent control Act. The fair rental value of the house is ₹ 10,000 per
month. The assessee has paid 5% of municipal valuation as local taxes and 5% as
education and health cess. The construction of the property started on 1st
October 2019 and completed in February 2023.
He had borrowed ₹ 5,00,000 @ 10% for the construction of the house on which he
had paid interest up to 31.3.2022 and ₹ 50,000 as interest during the previous year.
Fire insurance premium paid for the house is ₹ 2,000. He could not realise one
month rent (conditions of rule 4 satisfied). Compute income from house property.
House Remaining Vacant During the Previous Year
In the case of a let out property remaining vacant for the whole or any part of the previous
year the gross annual value will be determined as follows.

Situation Rule for Annual Value (GAV)

1. House vacant for the whole year Nil

2. House vacant for part of the year

A. Actual Rent < Expected Rent (due to vacancy) GAV = Actual Rent
received/receivable

B. Actual Rent is less than Expected Rent (not due GAV = Expected Rent
to vacancy)

Example

Examples Expected Actual Vacant Rent GAV

Rent Rent
Monthly Rent 20,000 pm 1,92,000 180,000 60,000 1,80,000
Expected Rent 1,92,000
Vacancy 3 Months
Monthly Rent 3000 pm 1,95,000 30,000 6000 1,95,000
Expected Rent 1,95,000
Vacancy 2 Months
Monthly Rent 25,000 pm 3,00,000 2,25,000 75,000 2,25,000
Expected Rent 3,00,000
Vacancy 3 Months
Gross Annual Value when there is Vacancy and Unrealised Rent
The method to determine gross annual value when there is vacancy can be adopted only
when the actual rent is lesser than reasonable rent due to 'vacancy'. However, when the
actual rent goes below the reasonable rent due to reasons other than vacancy, i.e., due
to unrealised rent or letting out at lower rate than reasonable rent, etc., gross annual
value is computed as given below.

Particulars LOP
Municipal Value xxx
Fair Rent xxx
Reasonable Rent (Higher Above) xxx
Standard Rent xxx
Expected Rent (Lower Above) xxx
Actural Rent (Rent receivable – unrealised rent) xxx
Consider the amount computed as per step 1 or 2 whichever is higher.
Less: Loss due to vacancy.
Gross Annual Value (GAV) xxx
Less: Municipal Tax Paid (xx)
Net Annual Value (NAV) xxx
Less: Deduction u/s 24
(a) Standard Deduction @30% (xx)
(b) Interest on Loan (xx)
Income From House Property xxx
Illustration
Mr. Vasanth has five buildings in Chennai, the details are given below.

Particulars Building Building Building Building Building

1 2 3 4 5

Annual Rent 134 134 146 242 220

Municipal Valuation 120 120 120 224 224

Fair Rental Value 136 136 136 234 234

Standard Rent 124 124 140 230 230

Unrealised Rent (2024- 4 12 10 100 80

25)

Loss due to Vacancy 2 2 2 2 1

Municipal Taxes (5%) Due Paid Paid Due Paid

You are required to compute the gross annual value of the houses for the assessment
year 2025-26.
Solution

Particulars Building Building Building Building Building

1 2 3 4 5

Higher of MV or FRV 124 124 136 230 230

subject to SR

Annual Rent – Unrealised 130 122 136 142 140

Rent

Higher of the two 130 124 136 230 230

Less: Loss due to Vacancy 2 2 2 2 1

Gross Annual Value (GAV) 128 122 134 228 229

Less: Municipal Taxes – 6 6 – 11.2

Paid (5% of MV)

Net Annual Value (NAV) 128 116 128 228 217.8

Partly Let out property (Area wise)

If some area of House property is let out & remaining is self occupied then let out portion
is treated as LOP & self-occupied portion is treated as SOP. In this case, Municipal value,
fair rent, standard rent, municipal taxes, interest on loan should be divided between SOP
& LOP on area basis.
Actual rent should never be divided because it is always for LOP.
Partly Let out property (Time wise)
If property is let out for some period of time & self-occupied for remaining time, then such
property is treated as LOP only. If property is let out for even 1 day, then, also that property
Illustration
From the following information compute the income from house property of Ms. Hima for
the year 2024-25. The house has two floors; one is let out and the other is self-occupied.
The let-out portion fetches a monthly income of ₹ 10,000. Municipal value of the house
is ₹ 2,00,000 while the standard rent is ₹ 2,50,000. However, the fair rental value is ₹
2,20,000. Municipal taxes paid during the year ₹ 10,000. Interest due on loan taken for
the construction of the house was ₹ 80,000 during the year. Loan was taken in 2018
Illustration
From the following information, compute the income from house property.

• Municipal valuation 1,00,000

• Fair rental value 1,40,000
• Standard rent 1,20,000
• Municipal taxes paid by the tenant 10,000
The house was self-occupied for four months and let out at the rate of ₹ 12,000 per
month, for the remaining eight months. The assessee paid ₹ 30,000 interest during the
year 2024-25, on loan taken for the construction of the house.
Income From House Property, Exempt from Tax
By virtue of various provisions in the Act, income from house property is exempt from tax
in the following cases.
1. Income from agricultural building.
2. Annual value of one building in the occupation of an ex-ruler.
3. Income from house property belonging to a local authority.
4. Income from house property of a scientific research organisation.
5. Income from house property of any university or other educational institution,
hospital or medical institution for charitable or philanthropic purposes or
functioning without profit motive.
6. Income from house property of a registered trade union.
7. Income from house property held by a trust, wholly for charitable or religious
purposes.
8. Income from house property held by a political party.
9. Income from house property held by the assessee for own business or profession,
10. the profits of which are taxable under the head 'income from business or
profession'.
11. Income from self occupied house. (Upto 2 SOP)
12. Income from house property of a mutual concern or club.
Deemed Ownership of Property
A person shall be deemed to be the owner of a property in the following cases.
1. In the case of transfer of property to spouse, otherwise than for adequate
consideration, the transferor will be deemed to be the owner of the property.
2. In the case of transfer of property to a minor, otherwise than for adequate
consideration, the transferor will be deemed to be the owner of the property.
3. A member of a Hindu Undivided Family holding an impartible estate of the family
is deemed to be the owner of the property.
4. A member of a co-operative society, company or association of persons to whom
a property is allotted, shall be deemed as the owner of the property, even if the
 ownership title of the property rests with the co-operative society, company or
association of persons, as the case may be.
5. A person entitled to retain possession of any building in part performance of a
contract as per the Transfer of Property Act, 1882, shall be deemed to be the
owner of the property.
6. In the case of long-term lease (12 years or more) in which the lessee takes land on
lease and constructs building on it, the lessor will become liable to tax only when
the property is handed over to him after the period of lease.
7. In the case of disputed ownership, the assessing officer will decide the ownership,
for tax purposes. However, if the court decides the case otherwise, re-assessment
will be made on the basis of the decision of the court.
8. If the owner of the property becomes insolvent, the official receiver or assignee
will be deemed to be the owner for tax purposes.
9. In the case of co-ownership or joint ownership, the share in the property of each
member will be separately assessed. If the share of each member is not definite
or certain, then it will be assessed as the property of AOP/BOI or partnership as
the case may be.
Previous Year Questions
1. Compute the annual value of the house in the following case:
Expected rent Rs. 1,00,000, House let-out @ Rs. 10,000 p.m. House tax paid by owner
Rs. 9,000 (10 % of municipal value). House remains vacant for 1 month. (Nov 24 - 5
Marks)
Computation of Net Annual Value
Particulars ₹
Expected Rent 100,000
Actual Rent 10,000 × 11 1,10,000
Gross Annual Value 1,10,000
Less: Municipal Tax Paid (9000)
Net Annual Value 1,01,000
2. Mr. Ram owns house property. Its annual letting value is Rs. 80,000. During the
previous year it was let-out to a tenant on a monthly rent of Rs. 7,000. He claimed the
following expenses actually incurred by him:
Municipal taxes Rs. 8,000.
Expenses for the recovery of rent of Rs. 600.
Maintenance Allowance paid to the stepmother Rs. 12,000 annually which was a
charge on the property according to his father's will.
The house remained vacant for one month during the previous year Compute the
income from house property for the Assessment Year. (Nov 2024 – 10 Marks)

Computation of Income from House Property of Mr Ram for AY 2025 – 26

Particulars ₹ ₹
Gross Annual Value (WN1) 77,000
Less: Municipal Tax (8000)
 Net Annual Value 69000
Less: Standard Deduction (20700)
Income From House Property 48300
Working Notes
1. Computation of GAV

Expected Rent 80,000

Actual Rent 7000 × 11 77000
Gross Annual Value 77,000
(GAV will be the Actual Rent (AR), since the actual rent is lower
than the Annual Letting Value (ALV) because of vacancy.)
2. Expenses not allowable
• Expenses for recovery of rent (₹600) → Not allowed (only municipal taxes &
standard deduction allowed).
• Maintenance allowance to stepmother (₹12,000) → Not allowed (even if a
charge on property, not deductible under Sec 24).
3. Shri Prakash has a house property let-out for residential purposes. The following are
the details of the property let-out:
Municipal rental value 8,500 p.m.
Actual rent realised 9,000 p.m.
Rent payable under Rent Control Act 8,500 per month.
The rent payable for a similar house is 9,000 p.m.
He has paid 15 % of the Municipal valuation as local taxes, 2 % of valuation as
Education and Health Cess.
The construction of property began in September 2019 and completed in February
2022. He had borrowed loan for the construction of the house property, on which
he has paid 2,00,000 as interest upto 31.3.2021 and 50,000 as interest during the
previous year. Fire Insurance Premium paid 2,000 p.a.
Compute the income from house property for the A.Y. 2025-26. (Nov 2022 – 10 Marks
(Modified))
Computation of Income from House Property of Mr Ram for AY 2025 – 26
Particulars ₹ ₹
Gross Annual Value (WN1) 10,8,000
Less: Municipal Tax 1,02,000 × 17% (17340)
Net Annual Value 90,660
Less: Standard Deduction 27,198
Less: Interest
Current Year Interest 50,000
Pre-construction 5
2,00,000 40,000 (1,17,198)
Loss From House Property 26538
Working Notes
1. Computation of GAV
 Municipal Value 1,02,000
Fair Rent 1,08,000
Reasonable Rent (Higher Above) 1,08,000
Standard Rent 1,02,000
Expected Rent (Lower Above) 1,02,000
Actual Rent 1,08,000
Gross Annual Value (Higher Above) 1,08,000
4. Compute the annual value of the house in the following cases:
Municipal value 1,00,000
Fair rent 1,20,000
Standard rent 90,000
Actual rent received 1,32,000
Municipal tax 10 % of M.V. paid by owner. (Nov 2023 – 5 Marks)
5. From the following information compute the annual value of the house:
Municipal value 2,00,000
Fair rent 1,80,000
Standard rent 2,50,000
Actual rent 30,000 pm

Municipal tax paid by the owner Rs. 15,000 and by the tenant Rs. 15,000.
Building remained vacant for two months during the previous year.
Unrealised rent Rs. 30,000. Conditions of Rule 4 are satisfied.
(Nov 2023 – 10 Marks)
6. Mr. Nair owns a house which is self-occupied by him throughout the P.Y. 2024-25.
The following are the details:
Municipal value of the house 60,000
Fair rental value 85,000
Municipal tax paid 10%
Fire insurance 600
Interest on loan for the construction of the house paid during the PY 60,000
Compute income from house property for the Assessment Year 2025 – 26.
(Nov 2021 – 10 Marks)