Income from House Property

Introduction

Question 1.
Explain the concept of Municipal Value, Fair Rent and Standard Rent.

Answer:
Municipal Value
It refers to the value that the Municipal Authorities deems as the value of the property for the purpose of assessment of property taxes.

Fair Rent
It is the rent fetched by a similar property, in same or similar locality, with same facilities.
Standard Rent

It is the maximum rent which a person can legally recover from his tenant under Rent Control Act 

Question 2.
Is it possible for the net annual value of a house property to be negative? What will be tax treatment if income under the head “Income from house property” is negative? [CMA June 2009, 4 Marks]
Answer:

Question 3.
Mr. X owns live houses at Cochin. Compute the Gross Annual Value of each house from the information given below: [May 2012, 5 Marks]

Answer:

Deductions Under Section 24

Question 4.
Mr. A owns a  commercial building let out @ X 40,000 per month. During the financial year 2020-21, he wants to claim expenses made | towards insurance, water, etc. from the rent received. Comment in the light of section 24(a).

Answer:
The section 24(a) allows deduction to an extent of 30% of Net Annual Value (NAV) as a standard deduction from the house property used as a let out property or deemed let out property. In the given case, Mr. A is entitled to standard deduction but no other expenditure shall be allowed as deduction towards insurance, repair, ground rent, collection charges, water charges, etc.

Question 5.
Ms. Jyoti purchased a house property costing X 49 Lakhs on 1st May, 2020. The property is used exclusively for her residential purpose. For this purpose she obtained loan from DHFL of X 35 lakhs bearing interest @ 14% p.a. on 1st April, 2020. She does not own any other house.

State with brief reasons the deductions that can be claimed by Ms. Jyoti in respect of interest on loan for Assessment Year 2021-22. What would -5 be the change in your answer if the loan has been taken over for repairs. [Nov. 2017 Modified, 5 Marks]

Answer:
Interest paid on housing loan = 14% of ₹ 35,00,000 = ₹ 4,90,000
Status of house property = Self-occupied
(a) Loan taken for construction or acquisition: If the capital is borrowed on or after April 1,1999 for acquiring or constructing a property which i is self-occupied, the interest on such borrowed capital is deductible up to ₹ 2,00,000.

(b) Loan taken for reconstruction, repairs or renewal: In this case, the maximum amount of deduction on account of interest is ₹ 30,000.

Question 6.
Mrs. Vimala commenced construction of house meant for residential purpose on 01.11.2018. She raised a loan of ₹ 10 lakhs @ 11% per annum from a bank. Finding that there was over run in the cost of construction, she raised a further loan of ₹ 5 lakhs from her friend at 15% rate of interest per annum on 1.10.2020. The construction was completed by February, 2021.
Compute the amount of interest allowable exemption under section 24 of the income-tax Act, 1961 in the following cases:
(i) The house was meant for self-occupation from 01.03.2021
(ii) The house was to be let out from 01.03.2021.
Is there any deduction available u/s 80C towards principal repayment in respect of above loans? [CMA June 2011, 6 Marks]
Answer:
(i) When the house was meant for self-occupation:
Computation of the amount of interest allowable exemption under section 24

As per section 24(b), the amount eligible for deduction for interest on borrowed capital (of the current year and pre-construction period) is up to ₹ 2,00,000. The actual interest (₹ 1,78,667) is deductible as it is within limit.

(ii) When the house is let out w.e.f. 1-3-2021:
If capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property, then no maximum limit has been prescribed, if the house is not self-occupied.
Therefore, the whole amount of ₹ 1,78,667 (calculated in first part) is deductible.

Question 7.
Sanjay commenced construction of a residential house intended exclusively for his residence, on 1-12-2019. He raised a loan of ₹ 8,00,000 @15% interest for the purpose of construction on 1-11 -2019. Finding that there was an over run in the cost of construction he raised a further loan of ₹ 9,00,000 at 14% p.a. on 1-9-2020. What is the interest allowable under section 24 in Assessment year 2021-22, assuming that the construction was completed on 31-3-2021? [May 2000 Modified, 5 Marks]
Answer:
Computation of the amount of interest allowable exemption under section 24

As per section 24(b), in case of self-occupied property, the amount eligible for deduction for interest on borrowed capital (of the current year and pre-construction period) is up to ₹ 2,00,000. Thus, the deduction under section 24 in respect of borrowed capital is ₹ 2,00,000.

Question 8.
Give a tabular presentation of computation of income under the head “Income from House Property”.
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Deduction For Unrealised Rent And Subsequent Recovery [Rule 4 And Section 25a]

Question 9.
Explain the treatment of unrealized rent and its recovery in subsequent years under the provisions of Income Tax Act, 1961 [May 2012, 4Marks]
Answer:

Question 10.
Mr. X owns a house property which is let out. During the previous year ending 31-3-2021, he receives the following:
(i) Arrears of Rent ₹ 30,000

(ii) Unrealized Rent ₹ 20,000 You are requested to
(a) State, how they should be dealt with as per the provisions of the Act.
(b) Compute the income chargeable under the head “Income from House Property”. ___ [May 2002, 4 Marks]
Answer:
(a) State, how they should be dealt with as per the provisions of the Act.
As per section 25A, the arrears of rent received are taxable in the year in which arrears have been received. However, deduction shall be allowed @ 30% of such arrears and only the balance amount is taxable. The taxability exists irrespective of the fact whether assessee remains the owner of the property in the year of receipt or not.

(b) Computation of Income from House Property

(Assessment Year 2021-22)

Let Out Property Throughout The Year [Without Vacancy]

Question 11.
[Elementary] Amalesh owns a house property which is let-out for ₹ 6,500 per month. The fair rent of the property is ? 90,000. Municipal taxes paid during the year for each half year is ₹ 3,200. The tenant has spent ₹ 10,000 towards repairs of the property during the year. Compute the income from house property for the assessment year 2021-22.

Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Working Notes:
1. The GAV of the house property is determined as under:
Step 1: Computation of Expected Rent

(a) Municipal Valuation : NA
(b) Fair Valuation : ₹ 90,000
(c) Higher of (a) and (b) : ₹ 90,000
(d) Standard Rent : NA
Expected Rent = Lower of (c) and (d) = ₹ 90,000

Step 2: Computation of Gross Annual value

1. 1. Expected Rent (As per step 1) : ₹ 90,000
   2. Actual Rent Received (6,500 × 12) : ₹ 78,000

1. Gross Annual Value: The expected rent is higher than the rent received. Thus, the expected rent i.e. ₹ 90,000 shall be GAV.
2. The Municipal Taxes paid during the year for each half year is ₹ 3,200 i.e. ₹ 6,400 annual.

Question 12.
Mr. Lai is the owner of a  commercial property let out at ₹ 60,000 per month. The Corporation tax on the property is ₹ 30,000 annually, 60% of which is payable by the tenant. This tax was actually paid on 15.04.2021. He had borrowed a sum of ₹ 40 lakhs from his cousin, resident in Singapore (in dollars) for the construction of the property on which interest at 8% is payable. He has also received arrears of rent of ₹ 80,000 during the year, which was not charged to tax in the earlier years. What is the property income of Mr. Lai for the assessment year 2021-22?

Answer:
Computation of Income from House Property (Assessment Year 2021-22)

Working Notes:

1. 1. Municipal taxes paid by tenant (60%) are not deductible. The balance 40%, although paid by assessee, is not deducted because it was paid in FY 2021-22 and not in 2020-21.
   2. It is presumed that the tax has been deducted at source on the amount of interest payable outside India.
   3. As per section 25A, the arrears of rent received are taxable in the year in which arrears have been received. However, deduction shall be allowed @ 30% of such arrears and only the balance amount is taxable.

Question 13.
Tarun, employed in a private company, commenced construction of a commercial complex in July, 2019. He borrowed ₹ 50 lakhs from a bank @ 9% per annum. Interest up to 31.03.2020 was₹ 2,20,000 and for j the period from 01.04.2020 to 31.12.2020 ₹ 2,30,000; ₹ 1,40,000 towards interest for the balance three months remained unpaid.

The construction of the building was completed on 31st December, 2020. The building was let out w.e.f. 01.01.2021 for a monthly rent ₹ 90,000. Municipal tax of ₹ 1,20,000 was paid by cash on 10.01.2021. He repaid ₹ 1,90,000 towards principal during the previous year 2020-21, of which he paid ₹ 1,20,000 up to 31.12.2020. The municipal value of the property is ₹ 9,00,000.

Compute the income from house property of Tarun for the assessment year 2021-22.
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Question 14.
Mr. Ganesh owns a  commercial building whose construction got completed in June 2019. He took a loan of ₹ 15 lakhs from his friend on 1-8-2018 and had been paying interest calculated at 15% per annum. He is eligible for pre-construction interest as deduction as per the provisions of the Income Tax Act.

Mr. Ganesh has let out the commercial building at a monthly rent of ₹ 40,000 during the financial year 2020-21. He paid municipal tax of ₹ 18,000 each for the financial years 2019-20 and 2020-21 on 1-5-2020 and 5-4-2021 respectively.

Compute income under the head ‘House Property’ of Mr. Ganesh for the Assessment Year 2021-22. [May 2017, 4 Marks]
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Working Notes:

1. Municipal taxes paid on 5-4-2021 are not considered because these are not paid in financial year 2019-20.
2. The interest for pre-construction period deductible in previous year is determined as under:

(a) Pre-construction period (PCP) : 1-8-2018 to 31-3-2019 i.e. 8 Months
(b) Loan amount : ₹ 15,00,000
(c) Rate of Interest : 15%
(d) Total Pre-construction Interest : 15,00,000 × 15% × 8/12 = ₹ 1,50,000
(e) PCP Interest deductible in current Pr. Yr. : ₹ 1,50,000 × l/5 = ₹ 30,000

Question 15.
Mr. Ashok owns two buildings which are let out during the financial year 2020-21. The relevant details are as under:

Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Note: Repayment of principal amount of housing loan to bank is deductible from Gross Total Income under section 80C.

Working Notes:
1. The GAV of both the houses are determined as under:

Self-Occupied Property Throughout The Year [One Self-Occupied House]

Question 16.
Mr. Chaturvedi, Delhi has 3 house properties in various parts of India. The details are given below:

Note: All the properties were acquired constructed after 01.04.2013.
You are required to compute the income of Mr. Chaturvedi chargeable under x the head Income form house property for the assessment year 2021-22.
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Total taxable Income from House Property = (2,00,000) + 1,12,000 + (38,000) = – 1,26,000

Working Notes:

1. The NAV of self-occupied property (Delhi) is always taken as nil.
2. The GAV of both the houses are determined as under:
   

Question 17.
Raja is the owner of a residential house property having two independent floors of equal size in Chennai. The ground floor of the property has been let out to a tenant at rent of ₹ 15,000 per month from 1st June, 2020. The first floor of the property is occupied by Raja for his residential purpose.

Other particulars relating to the property are as follows:

Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Working Notes:

1. The NAV of self-occupied property is always taken as nil.
2. As per section 70, the loss from one house property can be set-off against income from another property.

Question 18.
Mr. Raphael constructed a shopping complex. He had taken a loan of 25 Lakhs for construction of the said property on 01-08-2018 from SBI @ 10% for 5 years. The construction was completed on 30-06-2019. Rental income received from shopping complex ₹ 30,000 per month being let out for the whole year. Municipal Taxes paid for shopping complex ₹ 8,000. Arrears of rent received from shopping complex ₹ 1,20,000.

Interest paid on loan taken from SBI for purchase of house for use as own residence for the period 2020-2 1 Is ₹ 3 lakhs.

You are required to compute Income from House property of Mr. Raphael for A.Y. 2021-22 as per Income Tax Act, 1961. [Nov. 2015, 8 Marks]
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Working Notes:

1. 1. The NAV of self-occupied property is always taken as nil.
   2. The maximum allowable amount for interest on loan for construction on self-occupied is ₹ 2,00,000.
   3. The interest for pre-construction period deductible in previous year is determined as under:
      (a) Pre-construction period (PCP) : 1-8-2018 to 31-3-2019 i.e. 8 Months
      (b) Loan amount : ₹ 25,00,000
      (c) Rate of Interest : 10%
      (d) Total Pre-construction Interest : 25,00,000 × 10% × 8/12 = ₹ 1,66,666.67
      (e) PCP Interest deductible in current Yr. : ₹ 1,66,666.67 × 1/5 = ₹ 33,333
   4. As per section 25A, the arrears of rent received are taxable in the year in which arrears have been received. However, deduction shall be allowed @ 30% of such arrears and only the balance amount is taxable.
   5. As per section 70, the loss from one house property can be set-off against income from another property.

Self-Occupied Property Throughout The Year [Two Self-Occupied Houses]

Question 19.
Mr. Nitin owns two houses, both of which are occupied by him for residential purpose. The details are given below:

Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

The total comes to (2,80,000), but in case of self-occupied, the total interest on borrowed capital is deductible up to ₹ 2,00,000 only. Hence, total taxable income from house property = – 2,00,000

Working Notes:
1. The NAV of self-occupied property is always taken as nil.

Question 20.
Nisha has two houses, both of which are self-occupied. The particulars of these are given below:

Compute Nisha’s income from the House Property for the Assessment Year 2021-22 and suggest which house should be opted by Nisha to be is assessed as self-occupied so that her Tax liability is minimum. [May 2014, 8 Marks]
Answer:
Computation of Income from House Property
(Assessment Year 2021-22)

Total taxable income = – 30,000

Working Notes:

1. The NAV of self-occupied property is always taken as nil.
2. The maximum allowable amount for interest on loan for repair on self-occupied is ₹ 30,000

Question 21.
Mr. Kamal Hasan has two independent residential flats in an apartment, both of them being of identical size. First flat is self-occupied and the second flat is occupied by his daughter, from whom he does not receive any rent.

For each flat the relevant annual rent details are as under: