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House Property – Definition, Scope & Tax Implications

Own a house, flat, or commercial property? Rental income or self-occupied - both are taxed! Even if you don't earn rent, deemed income applies. Let's understand when and how.

What is House Property?

Definition: Any building or land appurtenant to building

Includes:

  • Residential house/flat
  • Commercial building (shops, offices)
  • Farmhouse (if not agricultural)
  • Land with building
  • Godown, warehouse

Does NOT include:

  • Vacant land (no building) → Capital gain/other sources
  • Agricultural land (used for farming) → Agricultural income (exempt)

Conditions for "Income from House Property"

Section 22 - Income taxable if:

  1. Property must be building (or land appurtenant)
  2. You must be the owner (legal or deemed)
  3. Not used for own business/profession

If condition 3 fails: Income taxed under Business/Profession, not House Property

Example:

  • Doctor owns clinic building → Business income (not house property)
  • Doctor owns flat, rents out → House Property income ✅

Types of House Properties

1. Self-Occupied Property (SOP)

Used by owner for own residence

Rental income: Nil (not let out)

Annual Value: Deemed Nil (from FY 2019-20, for up to 2 properties)

Tax benefit: Interest on home loan deductible (max ₹2 lakh u/s 24)

Example:

  • Own 1 flat, live in it → Annual Value = Nil
  • Interest paid: ₹1,50,000 → Deduct ₹1,50,000
  • Income from HP: -₹1,50,000 (loss!)

2. Let-Out Property (LOP)

Rented to tenant, earning rental income

Annual Value: Actual rent OR municipal value (higher)

Example:

  • Rent: ₹30,000/month = ₹3,60,000/year
  • Municipal value: ₹3,00,000
  • Gross Annual Value: ₹3,60,000 (higher)

3. Deemed Let-Out Property (DLOP)

More than 2 self-occupied properties

Rule: Maximum 2 properties can be treated as self-occupied

3rd property onwards: Deemed let-out (even if not rented!)

Annual Value: Municipal value (deemed rent)

Example:

  • Property 1: Self-occupied (Mumbai) → SOP
  • Property 2: Self-occupied (Pune) → SOP
  • Property 3: Self-occupied (Goa) → DLOP (deemed let-out)
  • Municipal value (Goa): ₹5,00,000
  • Tax on ₹5L even though not earning rent!

Who is "Owner"?

Legal owner: Name on property papers

Deemed owner (Section 27):

  • Transfer to spouse/minor (without consideration) → You're deemed owner
  • Holder of impartible estate (HUF property)
  • Member of co-operative society (flat allotted)
  • Person with ownership rights (even without legal title)

Example:

  • Bought flat, registered in wife's name (gift) → You are deemed owner, you pay tax on rental income

Municipal Value vs Rent

Municipal Value: Valuation by local authority for property tax

Fair Rent: Rent property can reasonably fetch

Standard Rent: Rent fixed under Rent Control Act

Actual Rent: Rent actually received

Gross Annual Value (GAV) = Higher of:

  1. Municipal value
  2. Least of: Fair rent, Standard rent, Actual rent

Simplified: Usually actual rent (if let-out) or municipal value

Property Used for Business

Not taxed under House Property head!

Goes to Business/Profession income

Example:

  • CA owns office building, uses for practice → Business income
  • Factory owner owns factory building → Business income

Rental from business property:

  • If rented to others → House Property ✅
  • If self-used for business → Business income

Co-Ownership

Each co-owner is taxed on their share of income

Example:

  • 2 brothers own flat jointly (50-50)
  • Rent: ₹60,000/month = ₹7,20,000/year
  • Each brother: ₹3,60,000 taxable (50%)

Joint owners file separate returns, each showing their share!

Practical Examples

Example 1: Self-Occupied (1 Property)

Mr. Sharma:

  • 1 flat in Delhi (self-occupied)
  • Home loan interest: ₹1,80,000

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Result: Loss of ₹1.8L can be set off against other income!

Example 2: Let-Out Property

Mrs. Verma:

  • Flat rented: ₹25,000/month
  • Municipal taxes: ₹15,000
  • Loan interest: ₹80,000

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Example 3: Deemed Let-Out (3 Properties)

Mr. Kapoor (3 flats, all self-occupied):

  • Flat 1: Mumbai (choose SOP)
  • Flat 2: Goa (choose SOP)
  • Flat 3: Delhi (automatic DLOP)
  • Municipal value (Delhi): ₹6,00,000

Delhi flat (DLOP):

  • Annual Value: ₹6,00,000 (deemed)
  • Tax on ₹6L (after deductions)

Even though living in it!

Section 24 Deductions (Brief)

Two deductions from NAV:

Section 24(a): 30% standard deduction (no proof)

Section 24(b): Interest on home loan

  • Self-occupied: Max ₹2,00,000
  • Let-out: No limit

Summary Comparison

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Key Points

✅ House property: Building, not vacant land

✅ Owner: Legal or deemed (gift to spouse = you're owner)

✅ Self-occupied: Up to 2 properties can have Nil annual value

✅ 3rd property onwards: Deemed let-out (taxed even if vacant!)

✅ Business use: Not house property income, goes to business head

✅ Co-ownership: Each owner taxed on their share separately

✅ Municipal taxes: Deductible from gross annual value

Summary

  • House Property: Building/land with building owned by you and not used for own business
  • Self-occupied: Max 2 properties with Nil annual value, interest max ₹2L deduction
  • Let-out: Actual rent as annual value, 30% standard deduction, interest fully deductible
  • Deemed let-out: 3rd property onwards taxed on municipal value even if not rented
  • Owner: Legal or deemed (gift to family = deemed owner)
  • Business property: Not house property income, taxed under business head
  • Co-ownership: Each owner taxed on their proportionate share separately

Quiz Time! 🎯

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Next Chapter: Annual Value Computation! 🏠

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