Income from House Property: formula sheet

Key formulas

Charging rule (section 20(1))

Taxable under house property = annual value of building or appurtenant land owned by the assessee

Three tests: building or appurtenant land, ownership, and not used by the owner for his own business or profession.

Exclusion (section 20(2))

Portion occupied by assessee for his own business or profession (profits taxable) → not taxed under this head

The exclusion covers only the portion so occupied. Other portions remain chargeable.

Deemed owner: transfer to spouse or minor child

Individual who transfers property without adequate consideration to spouse (not under agreement to live apart) or minor child (not a married daughter) = owner

Section 25(a). The transferor, not the spouse or child, is treated as owner here.

Deemed owner: impartible estate

Holder of an impartible estate = individual owner of all properties in the estate

Section 25(b).

Deemed owner: member of society or company

Member of a co-operative society, company or association allotted or leased a building or part under a house building scheme = owner

Section 25(c).

Deemed owner: part performance of a contract

Person allowed to take or retain possession in part performance of a contract of the nature in section 53A of the Transfer of Property Act, 1882 = owner

Section 25(d). Registration of the title is not needed for this rule.

Deemed owner: acquiring rights

Person acquiring rights by sale, exchange or lease of 12 years or more (not a lease from month to month or for one year or less) = owner

Section 25(e)(i). Section 25(e)(ii) covers other transactions, except sale, exchange or lease, that enable enjoyment of the property.

Charge on house property

Chargeable: annual value of buildings and appurtenant lands owned by the assessee (section 20(1))

Ownership is the key condition. Rent paid by a tenant to someone else is not taxed here for the tenant.

Own business or profession exclusion

Portion occupied for own business or profession, whose profits are chargeable to tax = not under house property (section 20(2))

Applies only to the portion so occupied. Any other portion, such as a let-out floor, remains under house property.

Letting of residential house

Letting of a residential house or part by the owner = only house property, never business income (section 26(4))

Overrides any claim that letting is a business for a residential house.

Heads of income

Salaries | House property | Business or profession | Capital gains | Other sources (section 13)

Use this list to name the head in your answer.

Gross annual value of a let-out property

Gross annual value = Higher of (Expected rent, Actual rent received or receivable)

Section 21(1). Applies where the property or any part of it is let. 'Gross annual value' is a study-material label for the figure before the section 21(3) reduction.

Expected rent (usual working method)

Expected rent = Higher of (Municipal value, Fair rent), but not more than Standard rent where Standard rent applies

The Act says 'the sum for which it might reasonably be expected to let from year to year'. The municipal value, fair rent and standard rent working is the usual exam method. Follow your ICMAI study material for it. Standard rent applies only where rent control law fixes it.

Vacancy rule

If let property was vacant and, owing to vacancy, actual rent < expected rent, then gross annual value = actual rent received or receivable

Section 21(2). The shortfall must be because of vacancy, not because of a low agreed rent.

Unrealised rent

Actual rent = Rent received or receivable − Rent that cannot be realised

Section 21(4). Subject to the rules made for this purpose.

Reduction for municipal taxes

Annual value = Gross annual value − Local authority taxes actually paid by owner during the tax year

Section 21(3). Only taxes paid by the owner, in this tax year, whenever they became payable. Taxes paid by a tenant are not deducted.

Self-occupied house

Annual value = Nil (for up to two houses specified by the assessee)

Section 21(6) and 21(7)(a). Not available if the house is let at any time in the tax year or the owner derives any other benefit from it.

Net annual value

NAV = Annual value (section 21) − Local taxes actually paid by owner during the tax year

Section 21(3) reduces the annual value by local taxes. Deduct them only if the owner paid them in the tax year, whenever they became due. Taxes paid by the tenant are not deducted.

Standard deduction

Section 22(1)(a): 30% × annual value as determined under section 21 = 30% × NAV

The annual value under section 21 is already reduced by local taxes paid, so work the 30% on the figure after taxes. Never apply it when the annual value is nil.

Interest on borrowed capital

Section 22(1)(b): interest payable for the tax year on capital borrowed for acquisition, construction, repair, renewal or reconstruction

Allowed on accrual basis, whether or not paid.

Pre-construction interest

Yearly deduction = Total interest for the prior period ÷ 5

Allowed for the tax year of acquisition or construction and the next four tax years. Reduce it first by any amount already allowed under another provision of the Act.

Cap for self-occupied property

Total interest deduction ≤ ₹2,00,000 (conditions met) or ₹30,000 (any other case)

The ₹2,00,000 cap needs acquisition or construction with borrowed capital completed within five years from the end of the tax year of borrowing, and an interest certificate. Total of caps across such properties cannot exceed ₹2,00,000.

Income from house property (let)

Income = NAV − 30% of NAV − Interest (current year + 1/5 of pre-construction interest)

NAV is the annual value after local taxes. A negative figure is a loss under this head.

Arrears or unrealised rent taxable

Taxable amount = Amount received or realised − 30% of that amount = 70% of the amount

Taxed in the tax year of receipt under Income from house property. Section 23(1) and (3).

Timing rule

Taxable in the tax year of receipt or realisation, whether or not you are still the owner

Section 23(1) and (2). Do not tax it in the earlier year to which the rent relates.

Net annual value

Net annual value = Annual value − municipal taxes actually paid by the owner in the tax year

Section 21(3). Payment decides the deduction, not the year of liability.

Co-owned property

Each co-owner's income = computed on his own share, if shares are definite and ascertainable

Section 24(1). Each can claim the self-occupied nil annual value relief under section 21(6).

Unrealisable rent

Rent that cannot be realised is excluded from actual rent received or receivable

Section 21(4), subject to the rules made. When recovered later, section 23 applies.

Net loss under house property

Net loss = Total of losses of all properties − Total of income of all properties (same tax year)

Net all house properties first. Only a net loss goes forward to the next steps.

Inter-head set off limit

Set off against other heads = lower of (net house property loss, ₹2,00,000)

Applies to the current year's loss set off against salary, business, capital gains or other sources.

Amount carried forward

Carry forward = Net house property loss − Amount set off against other heads

This is the balance that section 110 allows you to carry forward.

Set off in later years

Set off = lower of (brought forward loss, house property income of that year)

Only against income from house property. No ₹2,00,000 cap applies to this set off.

Time limit (section 110(2))

Maximum carry forward period = 8 tax years immediately succeeding the tax year of loss

A loss of tax year 2026-27 can be carried to tax years 2027-28 up to 2034-35.

Quick revision

• Deduction under Section 22(1)(a) is 30% of the annual value determined under section 21.
• Interest on borrowed capital is deductible under Section 22(1)(b) when the property is acquired, constructed, repaired, renewed or reconstructed with that capital.
• Interest for the period before the tax year of acquisition or construction is deducted in five equal instalments, starting with the year of acquisition or construction.
• For properties under section 21(6), interest deduction is capped at ₹2,00,000 if construction or acquisition is completed within five years from the end of the tax year of borrowing and the lender's certificate is furnished.
• In any other case under section 21(6), the interest cap is ₹30,000.
• The total interest deduction under section 22(2) for properties under section 21(6) cannot exceed ₹2,00,000.
• Interest payable outside India is not allowed if tax was not paid or deducted and there is no agent in India.
• Arrears of rent or unrealised rent received later is taxed in the year of receipt, with a 30% deduction under Section 23.
• Arrears are taxed whether or not the assessee still owns the property in that year.
• House property loss that cannot be set off under section 109 is carried forward under Section 110.
• The carried-forward loss is set off only against house property income and for at most eight succeeding tax years.
• Use the term tax year, never assessment year.

Common mistakes

• Taxing the tenant or occupant instead of the owner. Fix: Remember that section 20 taxes the owner. Occupation matters only for the section 20(2) business exclusion.
• Excluding the whole property because part is used for business. Fix: Only the portion occupied for the owner's own business or profession is excluded. Let-out or other portions are still chargeable.
• Taxing the whole building under house property when part is used for own business. Fix: Split by use. Only the portion occupied for own business or profession is excluded; the rest stays in the charge.
• Saying business-use property is completely tax free. Fix: Write that it is not taxed under house property, but its income is taxed as business profit.
• Ignoring the standard rent cap and taking the higher of municipal value and fair rent alone. Fix: Whenever standard rent is given, cap expected rent at it. Write the three values in a row before choosing.
• Using actual rent as annual value in all vacancy cases. Fix: Use actual rent only if the property was let, was vacant, and owing to vacancy the actual rent is less than expected rent. Otherwise take the higher figure.
• Deducting municipal tax that the tenant paid, or taxes that were only due but unpaid. Fix: Deduct only taxes actually paid by the owner during the tax year, as section 21(3) says.
• Claiming the 30% deduction on a self-occupied house. Fix: Annual value is nil under section 21(6), so 30% of it is nil. Only interest, within the cap, is deducted.
• Taxing arrears in the year to which the rent relates. Fix: Tax arrears and recovered unrealised rent only in the tax year of receipt or realisation.
• Allowing repairs or collection charges in addition to the 30% deduction. Fix: Only the flat 30% is allowed on arrears and unrealised rent.

Exam tips

• MCQs often test the deemed owner list. Learn the five clauses of section 25 as short phrases.
• Write the three conditions of section 20(1) before applying them in a written answer. Examiners give marks for stating the rule.
• Underline words like own business, without adequate consideration and not less than twelve years in the question. They decide the answer.
• Separate the portions of a mixed-use building in a table or list. Treat each portion on its own.
• Do not compute annual value if the question asks only about chargeability. Answer exactly what is asked.
• In MCQs, watch for the words own business or profession and residential house letting; they point to section 20(2) and section 26(4).
• In written answers, always name the section and state the head, then the reason. Step marks go to reasoning.
• When a building is mixed-use, split it in a short table of portions in your working.