No.

1 for CA/CWA & MEC/CEC MASTER MINDS

INCOME FROM HOUSE PROPERTY

SOLUTION TO ASSIGNMENT SOLUTIONS
Problem No - 1
Computation of income from house property of Shri Raman for A.Y. 2015-16
Particulars Rs. Rs.
Gross Annual Value (See Note 1 below) 1,80,000
Less: Municipal taxes – paid by the tenant, hence not deductible Nil
Net Annual Value (NAV) 1,80,000
Less: Deductions under section 24
(i) 30% of NAV 54,000
(ii) Interest on housing loan (See Note 2 below)
- Interest on loan taken from bank 25,000
- Interest on fresh loan to repay old loan for this property 5,000 84,000
Income from house property 96,000
50% share taxable in the hands of Shri Raman (See Note3below) 48,000

Notes:

1. Computation of Gross Annual Value (GAV)

GAV is the higher of Expected rent and actual rent received. Expected rent is the higher of municipal
value and fair rent, but restricted to standard rent.
Particulars Rs. Rs. Rs. Rs.
a) Municipal value of property 1,60,000
b) Fair rent 1,50,000
c) Higher of (a) and (b) 1,60,000
d) Standard rent 1,70,000
e) Expected rent [lower of (c) and (d)] 1,60,000
f) Actual rent [15,000 x 12] 1,80,000
g) Gross Annual Value [higher of (e) and 1,80,000
(f)]

2. Interest on housing loan is allowable as a deduction under section 24 on accrual basis. Further,
interest on fresh loan taken to repay old loan is also allowable as deduction. However, interest on
unpaid interest is not allowable as deduction under section 24.

3. Section 26 provides that where a house property is owned by two or more persons whose shares
are definite and ascertainable, the share of each such person in the income of house property, as
computed in accordance with sections 22 to 25, shall be included in his respective total income.
Therefore, 50% of the total income from the house property is taxable in the hands of Mr. Raman
since he is an equal owner of the property.

Problem No - 2
Computation of income from house property of Mr. Vikas for the A.Y. 2015-16
Particulars Rs. Rs.
Income from house property
I. Self-occupied portion (Two third)
Net Annual value Nil

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Less: Deduction under section 24(b)

Interest on loan (See Note below) (Rs.18,600 x 2/3) 12,400
Loss from self occupied property (12,400)
II. Let-out portion (One third)
Gross Annual Value
a) Actual rent received ((Rs. 5,000 x 12) Rs.60,000
b) Expected rent Rs.36,000
[higher of municipal valuation (i.e.,Rs. 96,000) and
fair rent (i.e., Rs. 1,26,000) but restricted to standard
rent (i.e., Rs.1,08,000)] = Rs.1,08,000 x 1/3
Higher of (a) or (b) 60,000
Less: Municipal taxes (Rs. 96,000 x 11% x 1/3) 3,520
Net Annual Value 56,480
Less: Deductions under section 24
a) 30% of NAV 16,944
b) Interest on loan (See Note below) (Rs.18,600 x 1/3) 6,200 33,336
Income from house property 20,936
Note: Interest on loan taken for construction of building

Interest for the year (1.4.2014 to 31.3.2015) = 12% of Rs.1,00,000 = Rs.12,000

Pre-construction period interest = 12% of Rs.1,00,000 for 33 months (from 1.07.2007 to 31.3.2010) =
Rs.33,000

Pre-construction period interest to be allowed in 5 equal annual installments of Rs.6,600 from the year of
completion of construction i.e. from F.Y. 2010-11 till F.Y. 2014-15.

Therefore, total interest deduction under section 24 = Rs.12,000 + Rs.6,600 = Rs.18,600.

Problem No - 3
Computation of Income from house property for A.Y. 2015-16
Particulars Rs. Rs.
A) Rented unit (50% of total area – See Note 1 below)
Step I - Computation of Expected Rent
Municipal valuation (Rs.1,90,000 x ½) 95,000
Fair rent (Rs.1,85,000 x ½) 92,500
Standard rent (Rs.1,62,000 x ½) 81,000
Expected Rent is higher of municipal valuation and fair rent, but 81,000
restricted to standard rent
Step II - Actual Rent
Rent receivable for the whole year (Rs. 8,000 x 12) 96,000
Step III – Computation of Gross Annual Value
Actual rent received owing to vacancy (Rs. 96,000 – Rs. 16,000) 80,000
Since, owing to vacancy the actual rent received is lower than the
Expected Rent, the actual rent received is the Gross Annual Value
Gross Annual Value 80,000
Less: Municipal taxes (15% of Rs. 95,000) 14,250
Net Annual value 65,750
Less : Deductions under section 24 -
i) 30% of net annual value 19,725
ii) Interest on borrowed capital (Rs.750 x 12) 9,000 28,725
Taxable income from let out portion 37,025
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B) Self occupied unit (50% of total area – See Note 1 below)
Annual value Nil
Less : Deduction under section 24 -
Interest on borrowed capital (Rs. 750 x 12) 9,000 9,000
Income from house property 28,025
Note: No deduction will be allowed separately for light and water charges, lease money paid insurance
charges and repairs.

Problem No - 4
In this case, Nisha has more than one house property for self-occupation. As per section 23(4), Nisha
can avail the benefit of self-occupation (i.e., benefit of “Nil” Annual Value) only in respect of one of the
house properties, at her option. The other house property would be treated as “deemed let-out” property,
in respect of which the annual letting value would be the gross annual value. Nisha should, therefore,
consider the most beneficial option while deciding which house property should be treated by her as
self-occupied.
OPTION 1 [House I – Self-occupied and House II – Deemed to be let out]
If House I is opted to be self-occupied, Nisha’s income from house property for A.Y.2015-16 would be –
Particulars Amount in `
House I (Self-occupied) [Annual value is Nil] Nil
House II (Deemed to be let-out) [See Working Note below] 54,060
Income from house property 54,060
OPTION 2 [House I – Deemed to be let out and House II – Self-occupied]
If House II is opted to be self-occupied, Nisha’s income from house property for A.Y.2015-16 would be –
Particulars Amount in `
House I (Deemed to be let-out) [See Working Note below] 70,000
House II (Self-occupied) [Annual value is Nil, but interest deduction would be
available, subject to a maximum of ` 30,000. In case of money borrowed for
repair of self-occupied property, the interest deduction would be restricted to (30,000)
` 30,000, irrespective of the date of borrowal].
Income from house property 40,000

Since Option 2 is more beneficial, Nisha should opt to treat House - II as Self occupied and House I as
Deemed to be let out, in which case, her income from house property would be `40,000 for the A.Y.
2015-16.
Working Note:
Computation of income from House I and House II assuming that both are deemed to be let out
Particulars Amount in Rupees
House I House II
Gross Annual Value (GAV)
Annual Letting Value (ALV) is the GAV of house property
ALV = Higher of Municipal Value and Fair Rent but restricted to Standard 1,00,000 1,65,000
Rent
Less: Municipal taxes (paid by the owner during the previous year) Nil 9,200
Net Annual Value (NAV) 1,00,000 1,55,800
Less: Deductions under section 24
(a) 30% of NAV 30,000 46,740
(b) Interest on borrowed capital (allowed in full incase of deemed let - 55,000
out property)
Income from deemed to be let-out house property 70,000 54,060
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Problem No - 5
Computation of income from house property of Mrs. Dholakia for the A.Y. 2014-15
Particulars ` `
Income from house property
I. Self-occupied portion (Two third)
Net Annual value Nil
Less: Deduction under section 24(b)
Interest on loan (See Note below) (`19,000 x 2/3) 12,667
Loss from self occupied property (12,667)
II. Let-out portion (One third)
Gross Annual Value
(a) Actual rent received (`7,000 x 12) = `84,000
(b) Annual Letting Value (ALV)
[Higher of municipal valuation (i.e. `1,02,000) and fair rent (i.e. `1,32,000) but
restricted to standard rent (i.e. `1,14,000)] = `1,14,000 x 1/3 = `38,000
Higher of (a) or (b)
84,000
Less: Municipal taxes (`1,02,000 x 15% x 1/3) 5,100
Net Annual Value 78,900
Less: Deductions under section 24
(a) 30% of NAV 23,670
(b) Interest on loan (See Note below) (`19,000 x 1/3) 6,333 48,897
Income from house property 36,230
Note: Interest on loan taken for construction of building
Interest for the year (1.4.2013 to 31.3.2014) = 12% of ` 1,00,000 = ` 12,000
Pre-construction period interest = 12% of ` 1,00,000 for 35 months (from 1.05.2007 to31.3.2010) = `
35,000
Pre-construction period interest to be allowed in 5 equal annual installments of ` 7,000from the year of
completion of construction i.e. from F.Y. 2010-11 to F.Y. 2014-15.
Therefore, total interest deduction under section 24 = ` 12,000 + ` 7,000 = ` 19,000.

THE END

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