Computation of Income from House Property – Practical Problems
Your house earns ₹2 lakh rent annually but taxable income might be negative! How? Let's master house property computation.
Standard Computation Format
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Step-by-Step Detailed Process
Step 1: Determine Gross Annual Value (GAV)
Three scenarios:
A. Let-Out Property: GAV = Higher of:
- Actual rent received/receivable
- Municipal valuation or fair rent (whichever is lower)
B. Self-Occupied Property: GAV = NIL (Zero)
C. Deemed Let-Out (from FY 2019-20): If you own more than 2 houses and both/all self-occupied:
- 2 houses: Both treated as self-occupied (GAV = 0)
- 3+ houses: Choose any 2 as self-occupied, rest are deemed let-out
- Deemed let-out GAV = Expected rent (municipal/fair rent)
Step 2: Deduct Municipal Taxes
Only if paid by owner during the previous year
Note: If tenant pays, not deductible for owner
Step 3: Calculate NAV
NAV = GAV - Municipal Taxes
Step 4: Deductions under Section 24
(a) Standard Deduction: 30% of NAV (automatic, no conditions)
(b) Interest on Housing Loan:
| Property Type | Interest Deduction Limit |
|---|---|
| Let-out | No limit (fully deductible) |
| Self-occupied | ₹2,00,000 per year |
| Self-occupied (acquired after April 1, 1999 for construction/purchase) | ₹2,00,000 |
| Self-occupied (pre-construction interest) | 1/5th per year for 5 years |
Example 1: Let-Out Property
Mr. Sharma owns a flat in Mumbai (FY 2023-24):
Details:
- Actual rent received: ₹30,000/month = ₹3,60,000/year
- Municipal valuation: ₹2,80,000
- Fair rent: ₹3,00,000
- Municipal taxes paid by owner: ₹15,000
- Interest on housing loan: ₹1,80,000
- Loan taken for purchase in 2020
Computation:
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Key Points:
- Actual rent (₹3.6L) > Fair/Municipal → GAV = ₹3.6L
- Interest fully deductible (no ₹2L limit for let-out)
- Net positive income of ₹61,500
Example 2: Self-Occupied Property
Mrs. Kapoor lives in her own house in Delhi:
Details:
- Municipal valuation: ₹4,00,000
- Fair rent: ₹5,00,000
- Municipal taxes paid: ₹12,000
- Housing loan interest: ₹2,50,000
- Loan taken in 2021 for purchase
Computation:
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Key Points:
- Self-occupied → GAV = NIL
- Municipal taxes not deductible (GAV already 0)
- Interest limited to ₹2,00,000 (actual ₹2,50,000 but capped)
- Loss of ₹2 lakh (set off against other incomes)
Example 3: Deemed Let-Out (3 Houses)
Mr. Verma owns 3 houses, all self-occupied:
House 1 (Mumbai): Fair rent ₹6,00,000, Municipal tax ₹18,000, Interest ₹3,00,000 House 2 (Delhi): Fair rent ₹5,00,000, Municipal tax ₹15,000, Interest ₹2,50,000 House 3 (Goa): Fair rent ₹2,00,000, Municipal tax ₹8,000, Interest ₹1,00,000
Strategy: Shoose 2 with highest interest as self-occupied
Chosen as self-occupied: House 1 + House 2 Deemed let-out: House 3
Computation:
House 1 (Self-Occupied):
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House 2 (Self-Occupied):
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House 3 (Deemed Let-Out):
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Total Income from House Property: (₹2,00,000) + (₹2,00,000) + ₹34,400 = (₹3,65,600) Loss
Example 4: Let-Out for Part of Year
Ms. Patel rented out her flat:
- Let-out: April to December 2023 (9 months) @ ₹25,000/month
- Self-occupied: January to March 2024 (3 months)
- Fair rent: ₹3,00,000/year
- Municipal taxes: ₹10,000 (paid by owner)
- Interest: ₹1,50,000
Computation:
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Note: If property let-out for even 1 day in the year → Treated as let-out property for entire year!
Example 5: Vacant Property (Owner's Choice)
Mr. Singh's house vacant entire year (couldn't find tenant):
- Municipal valuation: ₹3,00,000
- Fair rent: ₹3,50,000
- Municipal taxes: ₹12,000
- Interest: ₹1,20,000
Computation:
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Option: Owner can claim as self-occupied (get interest deduction up to ₹2L) OR not claim anything
Special Situations
1. Unrealized Rent
Rent receivable but not received: ₹50,000
Treatment:
- Include in GAV initially
- If irrecoverable: Can claim deduction (30% + arrears deduction)
- Court case needed to prove irrecoverability
2. Co-Owned Property
Two brothers co-own a house 50:50, rent ₹4,00,000
Each brother's computation:
- GAV = ₹2,00,000 (50%)
- Municipal tax, interest also 50% each
- Each shows separate income/loss
3. Pre-Construction Interest
Loan taken: 2021 Construction completed: 2023 Pre-construction interest: ₹3,00,000
Deduction: 1/5th per year for 5 years = ₹60,000/year
Practice Problem
Try yourself!
Ravi owns 2 flats:
Flat A (Let-out, Bangalore):
- Rent: ₹40,000/month
- Municipal taxes paid: ₹20,000
- Interest on loan: ₹4,50,000
Flat B (Self-occupied, Mysore):
- Municipal valuation: ₹3,00,000
- Interest: ₹1,80,000
Calculate total income from house property
Solution:
Flat A:
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Flat B:
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Total: (₹1,28,000) + (₹1,80,000) = Loss of ₹3,08,000
Summary
- Format: GAV - Municipal tax = NAV - 30% standard - Interest = Income/Loss
- Self-occupied: GAV = 0, Interest max ₹2 lakh
- Let-out: GAV = higher of actual/MV/FR, Interest no limit
- Deemed let-out: 3+ houses, choose any 2 as self-occupied
- Municipal taxes: Only if paid by owner, deductible from GAV
- Standard deduction: 30% of NAV (automatic)
- Loss: Can be set off against other incomes (max ₹2L under new regime)
Quiz Time! 🎯
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Next Unit: Profits & Gains of Business or Profession! 💼