Income from House Property: A Taxpayer’s Guide

In India, if you own a property that is rented or generates any income, you have to pay taxes on its income. The income generated from this source falls under Income from House Property” as stated in the Income Tax Act 1961.

This blog post aims to clarify the concept of income from house property in India. We’ll explain the key aspects, including what’s taxable, how it’s calculated, and a few conditions of its tax exclusion.

Before diving into how it is calculated, let’s explore what house property income means, both for the government and as a taxpayer.

What is Income from House Property?

Any income generated or received from owning or renting a residential or commercial property is referred to as income from house property. This income can be in the form of rent received from tenants or in the case of self-occupied properties, a deemed rental income.

Still confused with the term rent received or deemed rental income. Don’t worry, we have explained below:

Rent Received: When you rent your property to anyone or give it to someone on a lease that generates recurring or fixed income for you.

Deemed Rental Income: If you own more than two “self-occupied house property”, only two will be considered as self-occupied property and remaining will be treated as “let out property” and notional rent will be calculated as deemed rental income for those remaining self-occupied house property. You can choose “self-occupied house property” as per your choice.

What is Taxable as Income from House Property? Annual Value of Property

Tax on House property income is not calculated on Actual rent received. There are some other aspects which are also considered before arriving at house property income. The tax is calculated based on the “annual value” of the property. It’s an estimated value that a property can generate in the market in a year.

The following are the different points considered when determining the annual value:

• Location: Properties that are situated in prime locations potentially create higher rents, leading to a higher annual value.
• Size and Amenities: Depending on the property size and the amenities it offers, decide the annual value.
• Age and Condition: Those very old properties that need renovation might have a lower annual value
• Municipal Taxes: Local body taxes paid by the owner are sometimes added to the annual value.

The income tax regime under Sections 22 to 27 explains the taxation of Income from House Property. Let’s explore what each section describes:

• Section 22: What is Taxable under Income from House Property (Annual Value of Property Explained)
• Section 23: How to find and calculate Annual Value
• Section 24: Conditions under which tax deductions are considered for Income from House Property
• Section 25: What can’t be deducted from rent received from tenants?
• Section 25AA: Rent you expected but didn’t get but realized in subsequent period.
• Section 25B: Dues of rent received
• Section 26: Describes about the property owned by co-owners
• Section 27: Explain, conditions when you’re taxed like the owner, even if you’re not on paper

I hope, now, your basic concept on house property income is now clear. Whether you own property for self-use or commercial purposes, you must pay the tax on these properties.

In the next part, analyze how the annual value of a property is calculated for paying taxes.

Methods for Determining The Annual Value

There are different methods used to determine the annual value of any property

• Municipal Valuation: In some areas, municipalities and the local government body determine the annual value of properties.
• Standard Rent: This rent is determined under the Rent Control Act. The property owner cannot charge a higher than the standard rent which is fixed under the Rent Control Act.
• Fair Market Rent: It is the rent of similar properties in the locality.

What makes rent taxable in India?

Here we have mentioned the conditions when you are supposed to pay taxes on income from house property:

• Ownership: You must own the property.
• Possession: You or to whom you have given your property on the lease must own it for at least some part of the financial year.
• Genuine Transaction: The rental income you generate must be derived from a genuine lease agreement.

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Calculating Income from House Property

Steps for Computation of Gross Annual Value of Let out Property:-

Step 1. Compute Expected Rent (ER) :- It is higher of Market Value and Fair Rent, but restricted to Standard Rent.

Step 2. Compute actual rent received (AR) :- It is “Actual Rent Receivable” minus “Unrealised rent”
Step 3. Compare ER and AR received
Step 4. Gross Annual Value :- It is the Higher of ER and AR received.

Computation of Income from House Property

Conclusion

If you have a proper idea about the income from house property in India, it will help you to pay taxes on time and stay compliant with tax laws. It is important for every taxpayer who owns a property.

To know how to calculate the annual value, determine your income, and claim applicable deductions. All this information allows you to accurately report your income and potentially reduce your tax liability.

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Sanjiv Kumar Giri

Qualification: CA Finalist, B.Com (Hons), AMFI
Profession: Tax Consultant & Financial Planner
Organization: Master Trainer (CA) at “ICA Edu Skills Pvt. Ltd".
Founder: GiRi's Classes & GiRi's Financial Solutions
Author of Book: “10+2 Accountancy”

Mr. Sanjiv Kumar Giri is having more than 15 years of experience in the field of Direct Taxes, GST, and Accounts & Finance.

Linkedin Profile: https://in.linkedin.com/in/sanjiv-giri-02a99292

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