Q. What constitutes Income from house property?

A. For an income to be taxed as income from house property, it has to be an income derived from building or land appurtenant thereto i.e. land attached or situated in the vicinity of building. Therefore, rental income for a vacant land or plot is not taxable as income from house property but is taxed under the head `Income from other sources'.

 Q. Is Income from house property chargeable to tax only in the hands of the legal owner?

A. Yes, it is the legal owner who is chargeable to tax in respect of property income. In the following cases, enumerated in section 27, persons are deemed to be owners of the house property for the purpose of computing income from house property:

1. An individual, who transfers house property otherwise than for adequate consideration to his or her spouse (not being a transfer in connection with an agreement to live apart) or to his minor child (not being a married daughter)
2. The holder of an impartible estate
3. A member of a co-operative society (company or association of persons, with effect from assessment year 1988-89) to whom a building or a part thereof is allotted or leased under a house building scheme of the society (company or association of persons)
4. A person who comes to have control over the property in part performance of a contract of the nature referred to in clause (f) of section 269UA (i.e., taking a property on lease for not less than 12 years) from the assessment year 1988-89.

 Q. Is income from Superstructure built on leased land taxable as house property Income?

A. Yes. As the assessee is the owner of the superstructure, the income from such property is taxable as income from house property.

Q. What is the annual value of a house property?

A. Though tax under the head `Income from house property' is tax on income, yet it is not a tax on rents but on the inherent capacity of a building to yield income. The standard selected as a measure of the income to be taxed is annual value, which is deemed to be the sum for which the property might reasonably be expected to be let out from year to year.

Q. How is annual value for a house property calculated?

A. The procedure for calculating the annual value is as follows:

1. Find out the gross annual value, which will be the maximum of the following three: a) municipal value (gross); b) actual rent, and c) fair rent, i.e., rent of similar properties in the same or similar locality.
2. Deduct the municipal taxes borne and paid by the owner from the gross annual value computed above.

Q. What are the deductions allowed from Income from house property?

A. An assessee can claim the following deductions from his income from house property:

1. Repairs and collection charges – One-fourth of the net adjusted annual value is allowed as a deduction regardless of the amount of actual expenditure.
2. Insurance premium – Amount of premium actually paid during the year to insure the property against risk of damage or destruction.
3. Annual charge - Amount of annual charge, not being a capital charge or a charge created by the assessee voluntarily is allowed as a deduction, where property is subject to an annual charge.
4. Ground rent - Ground rent is allowed as a deduction on accrual basis.
5. Interest on borrowed capital – Interest on borrowed capital is allowed as a deduction on accrual basis if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Interest payable by an assessee in respect of funds borrowed for the acquisition or construction of a house property pertaining to the period prior to the previous year in which such property has been acquired or constructed, to the extent it is allowed as a deduction under any provisions of the Act, is deductible in five equal annual installments commencing from the previous year in which the house is acquired or constructed.
6. Land revenue – Any sum paid on account of land revenue or any other tax levied by a state government in respect of property is deductible on payment basis.
7. Vacancy allowance – it is deductible if the property remains vacant during a part of the year. It is equal to that part of net adjusted annual value (not annual rent) which is proportionate to the period during which the property remains vacant.
8. Unrealized rent – unrealized rent is deductible if such rent is proved to be lost and unrecoverable, where (a) the tenancy is bona fide; (b) the defaulting tenant has vacated the property 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 would be worthless; and (e) the annual value of the property to which the unpaid rent relates has been included in the assessed income.

Q. Can an assessee claim deduction under section 24(1) in case of Self Occupied Property ?

A. In respect of Self Occupied Property whose annual value is taken to be nil under section 23(2)(a)(i), no deduction shall be allowed under section 24(1), for computing income chargeable under the head "Income from House Property". However, interest on capital borrowed for the purchase, construction etc., of the house property will be allowed as a deduction subject to a maximum of Rs. 30000/- ( where capital borrowed before 1-4-99) under section 24(1)(vi). Deduction will be subject to maximum of Rs. 75,000/- ( increased to Rs.1,00,000/- from the F/Y 2000-01 & Rs.1,50,000/- from F/Y 2001-02), where the property is acquired or constructed from the capital borrowed on or after 1-4-1999 and such acquisition or construction complete before 1-4-2003.

Q. Is the interest payable outside India allowed as a deduction u/s 24(1) while computing the income from house property?

A. No the interest paid or payable outside India is not deductible.