Income under the Head House Property: formula sheet

Key formulas

Basis of charge (section 20(1))

Building or land appurtenant thereto + owned by the assessee → annual value taxed under Income from house property

Both conditions must hold. The charge is on annual value, not simply on rent received.

Exclusion for own business or profession (section 20(2))

Portion occupied by the assessee for his business or profession, whose profits are chargeable to tax → not charged under this head

The exclusion applies only to the portion so occupied, and only where the profits are chargeable to income-tax.

Letting of residential house (section 26(4))

Income from letting out a residential house or part of it by the owner → only under Income from house property

It cannot be taxed as business income.

Set off of house property loss (section 109(1)(b))

House property loss set off against other heads ≤ ₹2,00,000

A link to the next topic, useful for context in a combined question.

Deemed owner clause (a)

Transferor without adequate consideration to spouse or minor child = deemed owner

Spouse transfer under an agreement to live apart is excluded. A married daughter is excluded from the minor child limb.

Impartible estate (b)

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

Applies to every property comprised in the estate.

Society or company member (c)

Member allotted or leased a building under a house building scheme = deemed owner

Applies to co-operative society, company or other association of persons.

Part performance (d)

Person allowed possession under a contract like section 53A, Transfer of Property Act, 1882 = deemed owner

Possession is given before the transfer is completed.

Rights acquired (e)

Rights by sale, exchange or lease of 12 years or more, or by a transaction enabling enjoyment = deemed owner

Lease from month to month or for not more than one year is excluded.

Annual value of a let-out property (section 21(1))

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

Actual rent is the rent for the tax year, before any vacancy adjustment.

Expected rent

Expected rent = higher of (Municipal value, Fair rent), but not more than Standard rent where Rent Control law applies

Method as taught in the study material. Apply the standard rent cap only if the question gives a standard rent.

Vacancy rule (section 21(2))

If let, vacant, and rent received or receivable < expected rent because of the vacancy, then annual value = rent actually received or receivable

Applies only when the lower rent is due to vacancy. If the rent is low for any other reason, use the higher-of rule.

Unrealised rent (section 21(4))

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

Excluded only subject to the prescribed rules. Read the facts for the conditions given.

Municipal taxes (section 21(3))

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

Taxes paid by the tenant are not deducted. Taxes paid in this year count whenever they became due.

Self-occupied house (section 21(6) and (7))

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

Not available if any part is let during the year or the owner gets another benefit. Other houses are deemed let-out.

Stock-in-trade (section 21(5))

Annual value = Nil up to two years from the end of the financial year in which the completion certificate is obtained

Applies only if the property is held as stock-in-trade and not let at any time in the year.

Arrears and unrealised rent received later (section 23)

Taxable amount = Arrears or unrealised rent received − 30% of it

Taxed in the tax year of receipt, whether or not you still own the property.

Standard deduction

30% × (Annual value − Municipal taxes paid by owner)

Section 22(1)(a), with section 21(3). Applies to let property. For self-occupied property the annual value is nil, so this deduction is nil.

Income from let house property

Net annual value − 30% standard deduction − Interest on borrowed capital (current year interest + one-fifth of pre-construction interest)

A negative result is a loss under this head.

Pre-construction interest

Total interest for the period before the year of acquisition or construction ÷ 5 per year

Section 22(1)(c). Claimed in the year of acquisition or construction and in each of the four following tax years. Reduce first by any amount already allowed under another provision (section 22(3)).

Cap for self-occupied property (conditions met)

Interest under 22(1)(b) and (c) together ≤ ₹2,00,000

Section 22(2)(a). Needs (i) borrowing for acquisition or construction, completed within five years from the end of the tax year in which the capital was borrowed, and (ii) a certificate from the lender.

Cap for self-occupied property (other cases)

Interest under 22(1)(b) and (c) together ≤ ₹30,000

Section 22(2)(b). Applies where the conditions for ₹2,00,000 are not met, for example loan for repair or renewal.

Overall cap across such properties

Total deduction for all properties under section 21(6) ≤ ₹2,00,000

Section 22(5). Applies if the owner has more than one such house.

Interest payable outside India

Not allowed if tax not paid or deducted and there is no agent in India

Section 22(6).

Annual value (let property)

Annual value = higher of (expected rent, actual rent received or receivable)

Section 21(1). Expected rent is the sum for which the property might reasonably be expected to let from year to year. The study material estimates it from municipal value, fair rent and standard rent. Use the figure for the full year.

Annual value with vacancy

If vacancy makes actual rent < expected rent, annual value = actual rent received or receivable

Section 21(2). The vacancy must be the reason for the lower rent.

Unrealised rent

Rent that cannot be realised is excluded from actual rent

Section 21(4). It is subject to the conditions in the rules, so state that in your answer.

Net annual value

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

Section 21(3). Only taxes paid by the owner, and only in the year of payment, whatever year they relate to. NAV is the figure on which the 30% standard deduction is calculated.

Income from a let property

Income = NAV − 30% of NAV − interest on borrowed capital

The 30% standard deduction and the interest deduction are allowed under the deduction provisions of the Act for this head, not under section 21. Cite them from the Act. The 30% is on NAV, not on gross rent.

Self-occupied house

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

Section 21(6) and (7). The nil value also applies where the owner cannot actually occupy the house due to any reason. It is not available if the house is let at any time in the year or the owner gets any other benefit.

Arrears and unrealised rent recovered

Taxable = Amount received − 30% of that amount

Section 23(1) and (3). Taxed in the tax year of receipt or realisation, even if you no longer own the property. Section 23(3) allows a deduction of 30% of the arrears or unrealised rent.

Inter-head set off limit

Loss from house property set off against other heads ≤ ₹2,00,000

Section 109(1)(b). Applies to the aggregate house property loss of the tax year, against income under any other head.

Amount carried forward

Carry forward = House property loss − Amount set off under section 109

Section 110(1). The balance is carried to the next tax year.

Where carried loss can be set off

Only against income from house property of the following tax years

Section 110(1)(a). It cannot be set off against salary, business, capital gains or other sources.

Time limit

Maximum 8 tax years immediately succeeding the tax year of the loss

Section 110(2). The loss lapses after that.

Order of use in a later year

Current year house property income first absorbs brought-forward loss; unabsorbed balance moves on

Section 110(1)(b). Track the balance year by year.

Quick revision

• Income from house property is taxed on the owner or deemed owner, so confirm who that is first.
• Start every computation with annual value, then deduct municipal taxes actually paid to get net annual value.
• Set off of house property loss against any other head is limited to ₹2,00,000 for the tax year (section 109(1)(b)).
• Under section 108, a loss from one house is first set off against income from another house in the same head.
• Unabsorbed house property loss is carried forward to the following tax year and set off only against house property income (section 110(1)).
• House property loss can be carried forward for no more than eight tax years after the year it was first computed (section 110(2)).
• Business loss cannot be set off against salary income (section 109(1)(a)).
• Capital gains loss cannot be set off against any other head (section 109(2)).
• Business loss carry forward is also capped at eight tax years (section 112(2)); speculation loss is capped at four (section 113(3)).
• Write the provision, show working in steps, and end with a clear income or loss figure.

Common mistakes

• Taxing the rent actually received instead of the annual value. Fix: Write that the charge is on annual value under section 20(1). Rent is only one input in finding it.
• Treating vacant land as house property. Fix: Land is covered only when it is appurtenant to a building. Vacant land must be taxed under another head.
• Taxing the spouse who received a gift of house property. Fix: Under clause (a), the transferor is the deemed owner when the transfer is without adequate consideration.
• Applying clause (a) to a spouse living apart under an agreement. Fix: Spouse transfers under an agreement to live apart are excluded, so the clause does not apply.
• Taking the municipal value alone as the expected rent. Fix: Compare municipal value with fair rent and take the higher. Then apply the standard rent cap if one is given.
• Forgetting to apply the standard rent cap. Fix: Scan the question for standard rent. If present, expected rent cannot exceed it. If the question gives none, do not invent one.
• Calculating 30% on the gross annual value without deducting municipal taxes. Fix: First subtract municipal taxes actually paid by the owner, then take 30% of the balance.
• Claiming 30% standard deduction for a self-occupied house. Fix: The annual value of a self-occupied house is nil, so 30% of nil is nil. Only interest, within the cap, is available.
• Taking 30% on gross rent instead of NAV Fix: Always compute NAV first, and write 30% of NAV on its own line.
• Deducting municipal taxes that were not paid by the owner or not paid in the year Fix: Deduct only taxes actually paid by the owner during the tax year, as section 21(3) says.

Exam tips

• Begin every answer with the words of section 20(1): building or land appurtenant, owned by the assessee, annual value.
• Always mention section 20(2) when facts show an owner using part of the property for his own business or profession.
• In case-study questions, split the property into portions and give a one-line conclusion for each.
• Use the Income-tax Act, 2025 section numbers, not those of the 1961 Act, except when contrasting.
• End each answer with a clear conclusion that names the head of income.
• Always cite section 25 and the specific clause in your conclusion.
• Look for the key condition in facts: consideration, agreement to live apart, lease term.
• Write the legal owner and deemed owner separately in a short comparison.