Rise of American Accounts. "Hollywood. "

Direct Tax

.COMPUTATION OF INCOME FROM HOUSE PROPERTY.

Definition of the Head [ Section 22 ]

The income from houses, buildings , bungalows, godowns etc. is to be computed and assessed to tax under the head " Income from house property ". The income under this head is not based upon the actual income from the property but upon national income or the annual value of that building.

House Property Income = Annual Value of Building, less, Specified deductions u/s 24.

Section 22 of the Income - tax Act says :

The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as h8e may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ' Income from house property '.

For income to be taxed as ' Income from house property ' the following points should be noted carefully :

1. Building or Land Appurtenant thereto. The scope of this head of income is limited to the income from buildings or lands appurtenant ( attached or situated in the vicinity of building) to buildings only. Buildings include residential houses, bungalows, docks, warehouses, any block of bricks or stone work covered by a roof etc. Land which is not appurtenant to any buildings does not come within the scope of this section. In otherwords, any rent from such land shall not be taxable as house property income but instead it shall be taxable under the head " Other Sources ".

2.Annual Value. The meaning of word 'Annual Value' is very significant because the annual value of the building or land appurtenant thereto is to be taxed and not the rent received. The annual value is to be determined according to the provisions of section 23 of Income - tax Act.

3. The Assessee should be the owner of the property. It is only the owner of the house property who can be taxed under this head of income. The tax under this section is in respect of the legal or beneficial owner and not the occupation or possession of house property '. Therefore, income from subletting, will be chargeable under the head 'Income from other sources ' and not under 'house property '. So only the owner, may be legal or deemed owner, is liable to tax under this head of income, unless the house property is used by him for the purposes of his own business or profession. The question of ownership may be noted in the following cases :

(1). If the land was taken on lease ( long time) and a super - structure constructed, the person who takes land on lease will be treated as its owner.

(2). Where the property is mortgaged, it is the mortgager alone and not the mortgage who can be treated as the owner.

(3) Where the property was constructed in the name of partnership, it is the firm which is assessable as owner and not the individual partners.

(4) A person whose property is vested in the Custodian of Evacuee Property is not the 'owner' thereof for the purposes of this section.

(5) Where the assessee takes a building on lease and he is deriving some income by subletting or re-letting, this income will be taxable under the head 'Income from other sources ' and not under the head 'Income from house property '.

(6) In case houses were constructed by a cooperative building society and allotted or leased out to its members, the member shall be deemed to be the owner of the building or part thereof, as the case may be.

In one of the cases, Supreme Court decided that the owner must be a person who can exercise the rights of the owner, not on behalf of the owner but as his own right.

.Deemed Owner of House Property.

According to Section 27 of Income-tax Act the assessee in following cases is deemed to be the owner of the house property, though not owner of the house property :

(1) An individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart to a minor child not being a marriage daughter, shall be deemed to the owner of the house property so transferred.

(2) The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate.

(3) A member of a Co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society, shall be deemed to be the owner of that building or part thereof.

(4) A person who is allowed to take or retain possession of any building or part thereof in part performance of contract of the nature referred to in section 53A of the transfer of property Act, 1882.

(5) A person who acquires any rights ( Excluding any rights by way of a lease from month to month, or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of a transfer by way of lease for a term of not less than 12 years as per section 269 UA (f) ( whether originally or by extension).

4. It is not used for purposes of assessee's business or profession. Where the assessee is carrying on business or profession in his own house, building or in a portion of it and the income of such business or profession, is taxable under the head ' Profits or gains of business or profession ' , the annual value in respect of property or portion of it is not taxable under this head of income. As the business is being carried on in the assessee's own premises, so no rent will be allowed as expenditure to the assessee in respect of these premises.

But where the profits of such business or profession are not chargeable to tax, the annual value of the (owned) premises shall be computed and charged under the head ' house property '.

Important points.

(1) House property held as stock in trade. Where the house property is held by an assessee as stock in trade in the course of carrying on business of purchase and sale of such house property, it ( the house property) shall be assessed under the head house property. Thus, the annual value of such house properties shall be chargeable under the head ' Income from house property '

(2) House property of partner used by firm. Where a house property owned by a partner is used by the partnership firm for the purpose of its business or profession, the annual value of such have property shall be chargeable in the hands of partner under the head ' Income from house property '. Such a house property cannot be treated as the property used by the partner for his own business or profession.

(3) House property held in the name of business but not actually used for business. If the house property belongs to business (i.e., held in the name of business but is not actually used for the purpose of business it in to be assessed under the head ' Income from house property ' and not under the head ' Income from business or profession '.

5. Dispute about ownership. It is the owner who is liable to pay tax on the income of the house property and in case of a dispute about ownership the person who receives rent shall be liable to pay tax till the dispute about ownership is settled.

6. House Property situated in a foreign country. In case an assessee who is resident of India owns a house in a foreign country, income from such a house is taxable in India under the head house property. So income from house property in case of not ordinary resident and a non resident shall be exempted but again it will be taxable in India if it is received or it is payable in India.

7. Cases when rental income from building is not treated as house property income.

(1) Letting out of house property for smooth conduct of assessee's business / profession. If a person let's out any house property for smooth conduct of his business / profession, the rental income from such house property shall not be treated as house property income rather it shall be treated as income under the head business / profession.

Similarly, if a person carrying on any business / profession lets out his house property to a Bank, Post Office, Police Station, Excise Department or other department and the main purpose of letting is not to earn rental income but to facilitate it's own business / Profession, the rental income shall not the taxable as house property income rather it will the treated as business income of the person.

(2) Income from sub - letting of house property. If a person occupies a building as tenant and lets out full or part of the hired building to another person, it is called sub-letting. The income from sub-letting, if any, is taxable under the head ' income from other source ' and not under the head ' house property '. It is so because the person sub-letting the building is not the owner of that building. Such income is calculated as per section 56 after deducting all the expenses relating to sub-let portion.

(3) Composite letting out of building along with furniture etc. If a person lets out building along with furniture, plant, machinery and other facilities etc., for a composite rent and such composite rent can not be separated between (a) rent of building and (b) rent of other items / facilities then such composite rent shall be treated either as income under the head other sources or an income under the head business or profession, if such letting is the business of the assessee.

However, if such composite rent can be split up in parts and rent of building can be separately known, then such rent shall be treated as house property income and rent of other items / facilities shall be taxable as other source income / business or profession income.

(4) Income from hotel business / paying guest accommodation. If a person runs the hotel business or runs the business of providing paying guest accommodation, such rental income shall be taxable as income under the head Business / Profession.

However, if a person has a building in the nature of a hotel and he lets out such building as such to another person for carrying on hotel business, such rental income shall be taxable as ' income under the head house property '.

.EXEMPTED INCOMES FROM HOUSE PROPERTY.

Under section 10 of the Income-tax Act 1961 following incomes from house property are exempted from tax. These incomes are not to be included in the total income of assessee. Hence no tax is payable on such incomes. These incomes are :

1. Agricultural House Property [ Section 2(1)(c) ]. Income from such house property which is situated on or in the immediate vicinity of agricultural land which is used for agricultural purposes by cultivator is exempted from tax.

2. House property held for charitable purposes [ Section 11 ]. Any income from a house property held for charitable or religious purposes e. g., rent from shops owned by a temple is also exempted.

3. Self-occupied but vacant house [ Section 23(3) ]. In case an assessee keeps one of his own house reserved for self-occupation but is living in a rented house elsewhere due to his employment or profession the income from such house is taken to be nil.

4. House used for own business or profession. There is no income chargeable to tax under this head from such house property.

5. Property held by resistered trade union [ Section 10(24) ]. Income from a house property owned by a resistered trade union is not to be included in its G. T. I.

6. Income from house property held by following shall be exempted.

(1) House property held by a local authority.

(2) House property held by a scientific research institution.

(3) House property held at a political party.

(4) House property held by a university and any other educational institution working for spreading education and not to earn profit.

(5) House property held by a hospital or medical institution working for the spreading of medical services to people and are not meant for earning profit.

7. One house property (a palace) owned by a former ruler of Indian states. Ex-rulers of Indian states may be owning many palaces but only one palace of their choice shall be treated as a self occupied house and shall be exempted.

8. One self occupied house. In case assessee owns one residential house, the net annual value of the same shall be taken as nil but in case he owns more than one house, then only one of his choice but normally of higher value shall be treated as a self occupied one and other/ others are treated as deemed to be let out.

.In case of a Cooperative Society.

Income from following house properties is includible in Gross Total Income but a deduction is allowed from the Gross Total Income.

1. Income from any other Property [ Section 80P(2)(b) ] . In case the gross total income of a Co-operative society does not exceed Rs 20,000, any income derived by it from house property and included in its gross total income, the whole of such income is allowed as deduction while computing its total income. Co-operative society in this case should not be a housing society or an urban consumer's co-operative society or a society carrying a transport business.

2. Letting out of godown by co-operative societies [ Section 80P(2)(c) ]. If a co-operative society lets out godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of its income derived from letting out of houses or storages etc. is deductible in computing its total income.

.ANNUAL VALUE.

The term annual value is very important as calculation of income from house property depends upon correctly calculated annual value. It takes into consideration not only the rent received but also the expected rent a house can fetch under the given situation and not only once but from year to year.

.Definition of Annual Value [ Section 23 ]

1. For the purposes of section 22 , the annual value of any property shall be deemed to be :

(a) the sum for which the property might reasonably be expected to let from year to year : or

(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable : or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

Provided that the taxes levied by any local authority in respect of the property shall be deducted ( irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by owner in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Explanation. For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.

2. Where the property consists of a house or part of a house which.

(a) is in the occupation of the owner for the purposes of his own residence : or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him the annual value of such house or part of the house shall be taken to be nil.

3. The provisions of sub-section (2) shall not apply if :

(a) the house or part of the house is actually let during the whole or any part of the previous year : or

(b) any other benefit there from is derived by the owner.

4. Where the property referred to in sub-section (2) consists of more than one house :

(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf.

(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let. "

Section 23(1) of Income - tax Act has defined the word ' annual value ', as " the sum for which the property might reasonably be expected to let from year to year ". The annual value is the value which any house can fetch from the market under the prevailing circumstances such as local conditions, the demand for house, municipal valuation, type and standard of construction, rent for similar type of house in the similar type of locality, etc. From the explanation it should be clearly understood that the annual value does not mean the rent derived or rental value of the house but the notional rent at which the house can reasonably be let out. A property can be let out at a rent which is lower than its reasonable rent but its annual value will be its reasonable rent.

The Finance Act 2001 has changed the definition of the, Annual value as under :

In case of a let out house property , section 23(1) has defined this term as follows :

1. Where the house property or any part of it is let out, any sum of money received or receivable in the previous year or from year to year shall be treated as annual value.

2. Where any house property is let out and the rent received or receivable is in excess of the sum referred above ( in point 1) , the sum of money so received or receivable shall be treated as annual value.

3. Where a let out house property remains vacant during the previous year or during any part of the previous year and due to vacancy the actual rent received or receivable is less than the sum of money referred above in point (1), the sum of money so received or receivable shall be treated as annual value.

.Different Types of Rental Values.

1. Actual Rent. It is the rent actually received by the owner of the house property from the tenant. In case tenant pays composite rent i.e., rent of building, plant and machinery, furniture etc. and rent is separable, actual rent is reduced by the amount of rent of plant and machinery, furniture, etc. Balance is actual rent of house property. Any amount of local taxes paid by tenant, cost of repairs borne by tenant or any interest on advance deposit are not to be added.

As per explanation attached to section 23(1) for the purposes of calculating Annual Value the actual rent received or receivable shall not include any amount of unrealised rent if it fulfils certain conditions.

2. Real Rental Value [ RRV ]. In case cost of common facilities such as lift and pump maintenance, salary of common gardener and watchman, lighting of common stairs and corridors and water and electricity bills ( if included in rent) are borne by the owner and rent includes the cost of these items. Such cost is reduced out of actual rent received and balance is called Real Rental Value (R. R. V.) .

In case cost of following facilities is borne by the owner it shall be deducted out of actual rent before comparing it with other rental values.

(a) Lift and pump maintenance charges,

(b) Swimming pool maintenance charges,

(c) Salary of common gardener and watchman,

(d) Lighting of common stairs and corridors

(e) Water and electricity charges (only if it is mentioned that rent includes them).

In case the cost of facilities is charged separately by owner i.e., over and above the rent, it is treated as a separate source of income. The expenses incurred on such facilities are deducted out of amount so collected and balance ( Income/Loss) is taxable under the head, " Income from Other Sources ".

In case house property is divided in parts and a part is let out and other part is self - occupied, the fair rental value of the house shall be proportionately increased.

3. Municipal Rental Value (MRV). For the purposes of levying local taxes the local authority i.e., Municipal Corporation / Committee etc. conducts a periodical survey of the house properties in their local limits. On the basis of such survey the rental values are fixed which serves as the basis for levying tax. The rental value so fixed is called Municipal Rental Value ( M. R. V.).

4. Fair Rental Value [ F R V ]. It is the rental value a house property can fetch. It is based on the rent prevailing for similar type of accommodation in same or similar type of locality. It is based on the principle that rent prevailing in same locality for similar sized property is almost the same. Such rental value is called Fair Rental Value ( F. R. V.).

5. Standard Rent [ S. RENT ] . The rent fixed under Rent Control Act, where so ever applicable is called Standard Rent.

6. Expected Rental Value ( E R V). The expected rental value shall be determined as under :

A. In case standard rent has not been fixed

(1) Municipal Rental Value

(2) Fair Rental Value

(3) Actual Rent Received

Whichever higher shall be treated as expected rental value.

B. In case standard rent has been fixed.

(1) Municipal Rental Value

(2) Fair Rental Value

(3) Standard Rent.

In case standard rent has been fixed, the expected rent cannot exceed standard rent. So firstly compare Municipal rental value and fair rent and find out the higher one and the amount so calculated cannot exceed amount of standard rent but if actual rent received is more than standard rent, then actual rental value shall be treated as expected rental value.

In a Supreme Court decision, it has been clearly laid down that the expected rent cannot exceed the standard rent but it can be less than the standard rent. Balbir Singh v/s MCD (1985) 152 ITR 388(SC).

.DETERMINATION OF ANNUAL VALUE

The annual value of house property can be determined in following manner in different type of situations. These situations are :

A. Annual Value of Let out House Property.

1. House property is let out for full year and there is no vacancy or unrealised rent :

2. House property is let out and there is vacancy :

(a). If rent actually received or receivable is more than ERV:

(b) If rent actually received or receivable is less than ERV..

3. House property is let out and there is unrealised rent :

(a) If rent actually received or receivable ( after deducting unrealised rent as per conditions given) is more than ERV :

(b). If rent actually received or receivable ( after deducting unrealised rent as per conditions given) is less than ERV.

4. House Property is let out, there is vacancy also and there is unrealised rent.

5. House Property is let out for a part of the year because it is either purchased or constructed during the previous year.

B. Annual Value of Self - Occupied House Property

1. Only one house under own occupation.

2. More than one house under own occupation.

3. House property consists of various independent units and one is under own occupation and others are let out.

4. House property is partly let out and partly self under own occupation.

5. House property is used for own business or profession.

(A) Selection of Annual Rental Value ( Gross Annual Value) for Let Out House Property

A-1. House property is let out for full year and there is neither vacancy nor unrealised rent .

Step 1. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step 2. (1) If actual rent received or receivable is more than ERV ( Expected Rental Value) such rent received or receivable is Annual Rental Value ( A R V).

(2) If actual rent received or receivable is less than ERV ( Expected Rental Value) such ERV is Annual Rental Value ( ARV) and step 2 is not applicable.

(a) This rule is applicable only if property is actually let out and not in case of deemed to be let property.

(b) This rule is applicable only if there is no unrealised rent.

(c) Taxes paid by tenant, cost of repairs borne by tenant, or interest on deposit made by tenant are not to be added back.

A-2. House property is let out and there is vacancy.

A. If house property was vacant for full year the ARV is taken as NIL.

B. If house property was vacant for part of the year.

(1) If rent actually received or receivable is more than ERV.

Step 1. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step 2. If rent actually received or receivable for full year is more than ERV ( Expected Rental Value) such rent received or receivable is Annual Rental Value ( A R V ).

Step 3. Such ARV is reduced by loss due to vacancy i.e., an amount of actual rent in proportion of vacancy.

2. If rent actually received or receivable is less than ERV

Step 1. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step 2. If rent actually received or receivable for full year is less than ERV ( Expected Rental Value) then ERV so calculated shall be treated as Annual Rental Value ( ARV).

Step 3. Such ARV is reduced by loss due to vacancy i.e., an amount of actual rent in proportion of vacancy.

A-3. House Property is let out and there is unrealised rent

(1) If rent actually received or receivable ( after deducting unrealised rent as per conditions given below) is more than ERV:

Step 1. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step 2. If rent actually received or receivable ( after deducting unrealised rent as per conditions given below) is more than ERV ( Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

Important Points

If following conditions are fulfilled, the amount of unrealised rent shall be deducted out of actual rent received :

(a) that the tenancy is bonafide :

(b) that the tenant has vacated the house or steps have been taken to get the house vacated :

(c) the tenant is not occupying any other house owned by the assessee : and

(d) that all efforts to realise the rent have failed or the assessing officer is satisfied that there is no way to recover the rent :

(e) unrealised rent of earlier years is not deductible.

A-4. House property is let out, there is both vacancy and unrealised rent.

Step-1. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step -2. If rent actually received or receivable for full year ( after deducting unrealised rent as per conditions given) is more than ERV ( Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

Step-3. Such ARV is reduced by an amount of actual rent in proportion of vacancy.

Step -4. If rent actually received or receivable ( after deducting unrealised rent and vacancy as per condition given) is less than ERV, such ERV is ARV.

Treatment of unrealised rent [ Explanation to Section 23(1)(b) &(c)

Explanation to Section 23(1)(b) & 23(1)(c) clearly provides that where the property is let out, the amount of actual rent received or receivable by the owner shall not include, the amount of rent which the owner cannot realise. It implies that unrealised rent is to be deducted from annual rent receivable by the owner from the tenant.

Treatment of unrealised rent as per Income tax return forms

However, in the Income tax return forms issued by the CBDT, unrealised rent has been shown as deduction from annual letable value,

i.e., Gross annual value along with municipal taxes.

A-5. If house property is let out for a part of the year because it is either purchased or constructed during the previous year 2015-2016.

Take all the rental values only for that period for which house property is in existence or owned by assessee during the previous year. Compare them and select ARV accordingly.

Deductibility of taxes levied by local authority (

i.e., Municipal taxes) while computing Annual Value [ Provision to Section 23(1) ]

Any tax levied by local authority in respect of the house property shall be allowed as deduction while calculating annual value of such house property. The local authority may be known by various names such as Municipal Corporation, town area committee, cantonment board etc. The local authority imposes certain taxes on the owner or occupier of have property in order to meet the cost of maintaining the area, town or city. Such taxes are generally charged as a % of the municipal value of the house property as determined by the local authority or municipal corporation.

(B) Selection of Annual Rental Value for Self-Occupied House Property

B-1. Only one House under own Occupation. Annual value is taken as nil.

B-2. More than one house under own occupation. Annual value of one house is taken as NIL and other house/houses are deemed to be let.

B-3. House Property consists of various independent units and one is under own occupation and others are let out. Annual value of one unit is taken as NIL and other unit/units are treated as let out.

B-4. If house property is partly let out and partly self-occupied, it is to be treated as :

(a) if units are inseparable and it is treated as one house then no benefit of self-occupation shall be allowed.

(b) if units are separable, each unit or part is to be treated as a separate house and it shall get respective treatment.

B-5. House property is let out for part of the year under own occupation for part of the year. Whole property is treated as let out house property and no benefit of self-occupancy shall be allowed. But actual rent is taken only for numbers of months house property is actually let out. As such it gets the same treatment as is for unrealised rent.

.DEDUCTIONS U/S 24

While calculating house property income, deductions are allowed out of net annual value ( NAV). These deductions are as follows :

(1) Standard Deduction [ Sec. 24(a) ]

It is an adhoc / flat deduction available out of net annual value in respect of certain expenses of the owner of the house property connected with earning of rental income like rent collection charges, insurance of house, repair of house, etc. It is allowed @ 30% of ' net annual value '.

(2) Interest on 'Housing Loan ' [ Section 24(b) ]

Housing loan means loan taken / amount borrowed for purchase, construction, repairs or renovation, etc. of house property. Interest paid/ payable on housing loan is allowed as deduction while computing house property income. It is important to note that while calculating house property income in respect of let out house property / deemed to be let out house property, there is no maximum limit on interest, however, ( while calculating house property income) in respect of self - occupied house, there is a maximum limit upto which interest can be claimed as deduction. The tax treatment of interest on housing loan can be explained as follows :

(A) Let out/ Deemed to be let out house. While calculating house property income in respect of such house property, interest on loan taken for purchase / construction / repairs / renovation etc. is allowed as deduction in full. There is no maximum limit in respect of such interest.

Amount of deduction = Actual interest( without any limit)

(B) In case of 'Self - occupied house's. Although net annual value (NAV) is taken as nil in respect of self-occupied house property, yet interest on loan taken for purchase /construction /repairs /renovation etc. of such a house property is still allowed as deduction. The allowability of such interest is a benefit given to individuals and HUFs because it will result into loss under the head house property which can be set-off against other incomes of current ' previous year' or of future ' previous year ' as per rules.

. Other Important Points.

(1) Basis of allowability. Interest on housing loan is allowed as deduction on accrual basis. Thus, interest accrued / outstanding at end of the previous year is also allowed as deduction for that previous year. Even if an assessee maintains books of accounts on cash basis, the interest on housing loan shall be allowed as deduction on accrual basis.

(2) Loan taken to repay the original loan. Interest on new loan taken to repay the original housing loan is also allowed as deduction.

(3) Interest on delayed payment of interest. It is not allowed as deduction.

(4) Who may be lender? Housing loan may be taken from any lender i.e.,the lender may be a bank or any financial institution, or any company, or any friend or relative of the assessee or any other person.

(5) Interest payable outside India ( Section 25). If interest on loan is payable outside India then deduction shall be allowed only if tax is deducted at source out of such interest. In other words, if interest is paid without deduction of tax at source then it shall not be allowed as deduction. However, the requirements of TDS is not necessary if there is any person in India who may be treated as an agent of the lender u/s 163 ( who is outside India) in respect of such interest.

(6) Applicability of Maximum limit. In case of self - occupied house property, the maximum limit of interest is in respect of both pre-acquisition period interest and post - acquisition period interest.

(7) Loan taken to repay outstanding interest on old housing loan. Interest on such new loan is not allowed as deduction.

(8) Interest on loan shall be allowed on deduction out of the Net annual value of the house for which the loan has been taken. Thus, interest on loan taken for house A shall not be allowed as deduction out of net annual value of House B.

(9) Interest on money borrowed for the payment of municipal tax etc. is not allowed as deduction.

.Treatment of unrealised rent recovered [ upto assessment year 2001-02 ] [ Section 25A]

1. Any amount of unrealised rent ( allowed as deduction in an earlier year) recovered from a defaulting tenant is taxable as house property income in the previous year in which it is so recovered.

2. If amount of unrealised rent recovered is less than or equal to an amount, which was disallowed earlier, it shall not be taxable.

3. If amount of unrealised rent recovered is more than the amount which was disallowed earlier, excess of amount realised over amount disallowed earlier shall be deemed as income from house property.

4. No deduction shall be allowed out of such deemed income, i.e., expenses incurred to recover the unrealised rent.

5. Such amount shall be taxable under the head ' Income from House Property ' even if the assessee does not own that house in the current previous year.

Treatment of unrealised rent recovered [ From A/Y 2002-03 onwards ] [ Section 25AA ]

It shall be deemed as income of the year in which recovered even if the assessee does not own the house property during the previous year in which such amount is realised.

While calculating deemed income from house property from unrealised rent recovered, it shall be seen that on how much amount the assessee had saved tax in that previous year in which deduction was claimed. A comparison will be made between the amount of rental value on which tax has been paid and the rental value on which he would have paid tax, had there been unrealised rent.

.Special provision for arrears of rent received [ Section 25B ]

In case any arrears of rent of any earlier years are recovered during the previous year, these are deemed as income from house property after allowing 30% as Standard deduction. Such arrears of rent shall be taxable in the hands of assessee even if he does not own the property ( to which such arrears relate) during the previous year in which such arrears are recovered.

While calculating deemed income from house property for arrears of rent, it shall be seen that on how much amount the assessee had saved tax in that previous year to which arrears the related. A comparison will be made between the amount of rental value on which tax has been paid and the rental value on which he would have paid tax, had he received full rent in that very year.

.Property owned by co-owners [ Section 26 ]

If share of co-owners is determinate, the income of such house property is calculated as one house and income is divided amongst the co-owners. They shall be entitled to relief u/s 23(2) as if they are individually owners of such property.

.Joint Expenses.

Divide the expenses in the ratio of MRV or Municipal taxes or Fire Insurance Premium whichever is given in this order of preference.

.Loss from House Property.

This loss can be set off from any income of the same year. With effect from assessment year 1999-2000 any loss under the head " House Property " whether from let out or self occupied house which remains unadjusted, can be carried forward for 8 succeeding previous year to be set off from Income under the head " House Property ".only.

.Negative Annual Value.

This situation is possible only when amount of municipal taxes actually paid by the owner are more than Annual Rental Value. In such case only one deduction of interest on loan is allowed as per above rules. Hence there will be loss from such house property.