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How to compute Income from House Property ?

Income chargeable to tax under the head “Income from house property” in the case of a let-out property is computed in the following manner:

​Particulars

​Amount

Gross annual value

XXXX

Less:- Municipal taxes paid during the year

​XXXX

Net Annual Value (NAV)

​XXXX

Less:- Deduction under section 24

​

  • Deduction under section 24(a) @ 30% of NAV (Standard Deduction)

XXXX

  • Deduction under section 24(b) on account of interest on borrowed capital

XXXX

​Income from house property

​XXXX

How to calculate Gross Annual Value (GAV) ?

Gross annual value of a property which is let-out throughout the year is determined in the following manner:

Step 1:Compute reasonable expected rent of the property

Step 2:Compute actual rent of the property

Step 3:Compute gross annual value which will be higher of amount computed at step 1 or step 2


Step1:Computation of reasonable expected rent of a let out property

Reasonable expected rent will be higher of the following:

  • Municipal value of the property (*); or

  • Fair rent of the property (Note 1).

If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent (Note 2).


(*) Meaning of Municipal Value For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property.


Note 1: Meaning of Fair Rent It is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.

Note 2:Meaning of Standard Rent It is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.


Step 2 : Computation of actual rent of a let out property

Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent if conditions specified in this regard are satisfied.

(*) Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:

  • The tenancy is bona fide.

  • The defaulting tenant has vacated the property, 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 taxpayer.

  • The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

Allowable Deductions for Computing Income from Let-Out Property & Self-Occupied Property


Tax tool to compute Income from house property

Click on this link https://incometaxindia.gov.in/Pages/tools/income-from-house-property.aspx to compute your house property income by your own.






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