Income Tax on House Property: Frequently Asked Questions (FAQs)

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  • Last Updated on 25 October, 2023

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Income from House Property

Table of contents

  1. Introduction
  2. Deductions under Section 24
  3. Deduction for Unrealised Rent and Subsequent Recovery [Rule 4 and Section 25A]
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CA Intermediate | New Syllabus | May/Nov. 2023 Exams | A.Y. 2023-24

1. Introduction

FAQ 1. What is the concept of Municipal Value, Fair Rent and Standard Rent?

Municipal Value

It refers to the value that the Municipal Authorities deem as rental value of the property for the purpose of assessment of property tax.

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.

Dive Deeper:
Income from House Property – Exemption, Relief and Practice Questions

FAQ 2. Is it possible for the net annual value of the house property to be negative? What will be tax treatment if income under the head “Income from house property” is negative?
Negative NAV In case of Let out House Property Self-occupied house property
  • NAV = GAV – Municipal Taxes paid
  • Thus, if the municipal tax paid in the previous year by the landlord is more than the gross annual value, then the NAV can be negative.
  • It may happen where municipal taxes of earlier years are paid during the current year.
 The NAV of self-occupied is always taken as zero. Therefore, in case of self-occupied, negative NAV is not possible.
Tax treatment of loss under the head “Income from house property” 1. Inter-source adjustment (section 70):

    • Any loss from house property can be set-off from income of other house property.
    • It is also called as intra-head adjustment.

2. Inter head adjustment (section 71):

    • The unadjusted loss can be set-off against income under any other head during the current year (no loss can be set-off against winning from lotteries, races, etc.).
    • The assessee can set off such loss from house property up to a maximum of ` 2,00,000 only.

3. Carry Forward and Set off (section 71B):

    • If it is not possible to set-off the loss (fully or partly), then it can be carried forward to the next year for being set off against the incomes under the head “income from house property”.
    • Loss from house property can be carried forward for a maximum period of 8 years for set-off against income from house property.

Dive Deeper:
Tax Treatment of Income Under the Head “Income from House Property”

2. Deductions Under Section 24

FAQ 3. Mr A owns a commercial building let out @ ` 40,000 per month. During the financial year 2022-23, he wants to claim expenses made towards insurance, water, etc. from the rent received. Comment in the light of section 24(a).

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.

Taxmann.com | Research | Income-tax

FAQ 4. Ms Jyoti purchased a house property costing ` 49 Lakhs on 1st May, 2022. The property is used exclusively for her residential purpose. For this purpose she obtained loan from DHFL of ` 35 lakhs bearing interest @ 14% p.a. on 1st April, 2022. 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 2023-24. What would be the change in your answer if the loan has been taken over for repairs?

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 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.

3. Deduction for Unrealised Rent and Subsequent Recovery [Rule 4 and Section 25A]

FAQ 5. What is the treatment of unrealized rent and its recovery in subsequent years under the provisions of Income-tax Act, 1961
Meaning of Unrealized Rent It refers to the amount of rent payable but not paid by the tenant and not realized by the owner from the tenant.
Tax Treatment Of unrealized Rent The unrealized rent is deducted from the actual rent receivable from the property before computing income from that property, subject to fulfilment of following conditions prescribed under Rule 4 of the Income-tax Rules, 1962:

  • The tenancy is bona fide.
  • The defaulting tenant has vacated or the assessee has taken steps to compel the defaulting tenant to vacate the property.
  • The defaulting tenant is not in occupation of any other property owned by the assessee.
  • The assessee has taken all reasonable steps for recovery of unrealized rent or satisfies the assessing officer that such steps would be useless.
Subsequent Recovery The section 25A provides the following as regards recovery of unrealized rent:

  • It is chargeable under the head “Income from House Property”.
  • It is taxable in the year of actual receipt.
  • It will be taxable in the hands of assessee, even if he does not own the property to which such rent pertains.
  • The standard deduction under section 24(a) is allowed @ 30% of such receipt.

Taxmann.com | Practice | Income-tax

FAQ 6. Mr X owns a house property which is let out. During the previous year ending on 31-3-2023, he receives the following:

(i) Arrears of Rent 30,000
(ii) Unrealized Rent of 20,000

(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”

(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 2023-24)

Amount (`)
Arrear of Rent received 30,000
Less: Deduction @ 30% u/s 25A (9,000) 21,000
Unrealized Rent received 20,000
Less: Deduction @ 30% u/s 25A (6,000) 14,000
Taxable Income from House property 35,000

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