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Tax Laws and Practice · Income under the Head House Property

Computation of Income from House Property with Examples

Updated 11 October 2026 · Fact-checked

To compute income from house property, find the annual value of each property (higher of expected rent and actual rent, adjusted for vacancy and unrealised rent), deduct municipal taxes the owner paid to get net annual value, then deduct 30% of it and interest on borrowed capital. Treat each property, and each co-owner's share, separately.

Understand Computation of Income from House Property

Income from house property is a notional income. The law taxes the value your building can earn, not only the rent you actually collect. That is why you start from the annual value and not from the rent register.

Under section 21(1), the annual value is the higher of two figures: the sum for which the property might reasonably be expected to let from year to year, and the actual rent received or receivable if it is let. If the property was let but stood vacant for part of the year and, because of that vacancy, the actual rent is less than the expected rent, the annual value is the actual rent received or receivable (section 21(2)). Rent the owner cannot realise is left out of actual rent, subject to the rules made for this (section 21(4)).

Once you have the annual value, section 21(3) reduces it by local-authority taxes actually paid by the owner during the tax year. The result is the net annual value (NAV). From NAV you then take the standard deduction of 30% and the interest on borrowed capital. These two deductions are allowed under the deduction provisions for this head, which are separate from the sections quoted above. Check the exact section in the Act when you write your answer. What is left is the income under this head.

A house the owner occupies for his own residence, or cannot actually occupy due to any reason, has a nil annual value (section 21(6)). This applies to only two houses specified by the assessee. It does not apply if the house is let at any time in the year or the owner derives any other benefit from it (section 21(7)).

Two special situations come up often in exams. First, arrears of rent received, and unrealised rent recovered later, are taxed in the tax year of receipt or realisation, with a deduction of 30% of the amount, whether or not you still own the property (section 23). Second, when a property is co-owned or partly let, you compute each part or each share separately and then add the results.

Key rules to remember

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.

How to solve Computation of Income from House Property questions

Use this order for any house property question. Do it property by property, and share by share where there is co-ownership.

  1. 1List each property and note its use: let out, self-occupied, partly let, vacant or deemed let. Note your share if it is co-owned.
  2. 2Find the expected rent and the actual rent received or receivable for the full year. Exclude rent that could not be realised, if the facts say so.
  3. 3Apply the vacancy rule if the property was let but empty and the rent fell because of the vacancy. Otherwise take the higher of expected and actual rent as the annual value.
  4. 4Deduct municipal taxes actually paid by the owner in the year to get the NAV. Ignore taxes paid by the tenant or left unpaid.
  5. 5Deduct 30% of NAV and then the interest on borrowed capital for each property. For a self-occupied house, start from a nil annual value.
  6. 6Apply your percentage share if the property is co-owned, and add the results of all properties.
  7. 7Add arrears of rent or unrealised rent recovered in this year, after the 30% deduction under section 23. Then write the final income and a one-line conclusion citing the section.

Quickest way: Four-line column method

When to use it: Use this when the question has several properties or many figures and time is short.

  1. Make one column per property with rows: Annual value, Less municipal tax, NAV, Less 30%, Less interest, Income.
  2. Fill Annual value first by comparing expected and actual rent in rough pencil work, then adjust for vacancy.
  3. Compute 30% as NAV × 0.3 and check that the interest is added in the right column.
  4. Keep arrears and recovered rent in a separate line at the bottom and then total all columns.

Common mistakes in Computation of Income from House Property

  • Taking 30% on gross rent instead of NAV

    Students rush and apply the percentage before deducting municipal taxes.

    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

    The question mentions taxes, and students deduct all of them.

    Fix: Deduct only taxes actually paid by the owner during the tax year, as section 21(3) says.

  • Using actual rent when it is lower than expected rent for a reason other than vacancy

    Students assume low rent always replaces expected rent.

    Fix: The vacancy relief in section 21(2) applies only when the loss of rent is due to vacancy. Otherwise take the higher figure.

  • Allowing deductions other than the 30% against arrears of rent

    Students treat arrears as ordinary rent and run them through the usual NAV computation again.

    Fix: Under section 23, tax arrears and recovered unrealised rent in the year of receipt, and allow the deduction of 30% of the amount under section 23(3). Do not put them through the NAV steps again.

  • Taxing arrears in the year to which they relate or only if you still own the property

    Students link income to the earlier year or to ownership.

    Fix: Section 23 taxes it in the tax year of receipt or realisation, whether or not you are the owner in that year.

  • Giving a nil annual value to every self-occupied house

    Students forget the limit of two houses and the let-out condition.

    Fix: Nil value applies only to two houses specified by the assessee, and not if the house is let at any time in the year or gives any other benefit.

Worked examples

Example 1

Rohan owns a flat in Pune, let out for the whole year at ₹40,000 per month. Municipal value is ₹3,00,000, fair rent is ₹3,60,000 and standard rent is ₹4,20,000. He paid municipal taxes of ₹30,000 in the year and interest on a housing loan of ₹1,20,000. Compute his income from house property.

Show the solution
  1. Expected rent is the sum for which the flat might reasonably be expected to let from year to year (section 21(1)(a)). To estimate it, use the method taught in the study material: take the higher of municipal value (₹3,00,000) and fair rent (₹3,60,000), which is ₹3,60,000, and check it against standard rent of ₹4,20,000. It is below standard rent, so the estimate is ₹3,60,000.
  2. Actual rent = ₹40,000 × 12 = ₹4,80,000.
  3. Annual value is the higher of the two under section 21(1): ₹4,80,000. There is no vacancy.
  4. Less municipal taxes paid by the owner: ₹4,80,000 − ₹30,000 = ₹4,50,000 (NAV).
  5. Less 30% of NAV: ₹4,50,000 × 30% = ₹1,35,000.
  6. Less interest on borrowed capital: ₹1,20,000.
  7. Income = ₹4,50,000 − ₹1,35,000 − ₹1,20,000 = ₹1,95,000.

Answer: Income from house property = ₹1,95,000.

Example 2

Anita and Bimal own a commercial property equally. It is let for the full year at ₹60,000 per month. Expected rent is ₹6,00,000. Municipal taxes of ₹24,000 were paid by the owners and total loan interest was ₹2,00,000, shared equally. In the current tax year, Anita also received ₹50,000 as her share of arrears of rent for an earlier year, not taxed before. Compute Anita's income from house property.

Show the solution
  1. Actual rent = ₹60,000 × 12 = ₹7,20,000, which is higher than expected rent of ₹6,00,000. Annual value = ₹7,20,000.
  2. Less municipal taxes: ₹7,20,000 − ₹24,000 = ₹6,96,000 (NAV of the whole property).
  3. Less 30% of NAV: ₹6,96,000 × 30% = ₹2,08,800.
  4. Less interest: ₹2,00,000.
  5. Income of the property = ₹6,96,000 − ₹2,08,800 − ₹2,00,000 = ₹2,87,200.
  6. Anita's equal share = ₹2,87,200 ÷ 2 = ₹1,43,600.
  7. Arrears under section 23: ₹50,000 less 30% (₹15,000) = ₹35,000, taxed in the year of receipt.
  8. Total = ₹1,43,600 + ₹35,000 = ₹1,78,600.

Answer: Anita's income from house property = ₹1,78,600.

Exam tips

  • Show every line: annual value, municipal tax, NAV, 30%, interest, income. Marks are given for steps even if one figure is wrong.
  • Quote the section for the key rule, such as section 21 for annual value and section 23 for arrears, and end with a clear conclusion.
  • Read the facts for who paid the taxes and when. Many questions plant unpaid or tenant-paid taxes as traps.
  • Where a rule depends on the rules made under the Act, such as unrealised rent, state that condition instead of assuming it.
  • Do the arrears computation as a separate line so the examiner can see the 30% deduction clearly.

Practice questions from Income under the Head House Property

Computation of Income from House Property in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Computation of Income from House Property: frequently asked questions

How is income from co-owned property taxed?

Each co-owner is taxed on his own share of the property, and the computation is done on that share. This is the usual method when the shares are definite and ascertainable. Compute the whole property first and then apply the percentage share, as in the worked example.

How are arrears of rent taxed under the Income-tax Act, 2025?

Under section 23, arrears of rent received, and unrealised rent realised later, are income from house property in the tax year of receipt or realisation. A deduction of 30% of the amount is allowed. This applies whether or not you own the property in that year.

Is the 30% deduction calculated on rent or on NAV?

It is calculated on net annual value, which is the annual value less municipal taxes paid by the owner. For arrears and recovered unrealised rent, it is 30% of the amount received.

What if a let property was vacant for some months?

If the actual rent is lower than expected rent because of the vacancy, the annual value is the actual rent received or receivable under section 21(2). If the rent is lower for another reason, take the higher of expected and actual rent.

Can I claim nil annual value for all my self-occupied houses?

No. The nil value applies to only two houses that you specify. It is lost if the house is let at any time in the tax year or if you derive any other benefit from it.