The annual value of the property of which the assessee is the owner is
chargeable to Income Tax. It is imperative to note that the purpose of holding
such property should not be business/profession. The income under this head
deals with self-occupied or let out property for residential use.
Ingredients (Section 22):
- The property should consist of any building or lands appurtenant
- The assessee should be owner of the property.
- Property should not be used for business or profession.
- The charge is on the “Annual Value” (AV) of the property.
- Income from letting out a vacant land is “income from other source”
- Where assessee is engaged in the business of letting out property, such
income is “PGBP”.
- Income from property in the immediate vicinity of agricultural land
which is used as a store house or dwelling house by the cultivator.
- Income from property held for charitable or religious purpose.
- Income from house property belonging to
a. Local authority,
b. Approved scientific research association
c. Registered trade union
d. Political party
- Income from self-occupied property.
- Property used for own business or profession
- AV of any one place of an ex-ruler.
Types (Section 23)-
- Let-Out house property (Section 23(1))
- Self-occupied or unoccupied house property (Section 23(2))
- Deemed let-out house property (Section 23(4))
1. Let-Out Property
AV shall be deemed to be
- The sum for which the property might reasonably be expected to be let
- Where the property is actually let out, such actual rent received or
receivable, if it is higher than the sum referred in clause 1.
- Where the property is actually let out but the actual rent received or
receivable is less than the sum of money referred in clause 1, due to
vacancy for whole or any part of the year, such actual rent received or
For clauses 2 and 3, the rent receivable shall not include unrealized rent.
- Higher of the Expected Rent and Rent Actually received.
- Expected rent is higher of the Fair rent and Municipal Value. However, it cannot
exceed Standard Rent.
- Fair rent is the rent received for the similar property in neighborhood.
- Standard Rent is the Rent fixed by the Rent Control Act.
2. Self-Occupied Property
Where the property is in occupation of the owner himself and no other benefit is
taken by him out of this property, then the AV of such property is taken as Nil.
It is important to note that the property should be self or unoccupied for whole
3. Deemed Let-Out
If such property consists of more than one house, then the owner is given the
choice to claim this benefit against any of the houses. The rest of the property
are deemed to be let out and the AV of rest of the houses is calculated in the
same way as if it was let-out.
Deductions While Calculating Income From HP (Section 24 and 25)
- A sum equal to 30% of AV
- Municipal Taxes
- Interest on borrowed capital for the purpose of acquiring, constructing,
renovating or repairing such capital.
In CIT v. Podar Cement Co. and Ors, the SC held that a person who
receives or is entitled to receive the income from the property in his own right
is the owner.
In R.B. Jodha Mal Kuthiala v. CIT, SC held that for the purpose of this
section (22), the owner must be that person who can exercise the right of the
owner, not on behalf of the owner, but in his own right.
In CIT v. TP Sidhwa, it was held that in the case of sale of HP, the
seller continues to be the legal owner till the sale deed is registered in
favour of the buyer.
In Saiffuddin v. CIT, it was held that it is not necessary that a person
assessed under section 22 of the Act must be the owner of the property by virtue
of a sale deed in his favour.
In CIT v. Deepak Seth, it was held that a house for residential purpose
does not require compulsory residence throughout PY, if the assessee has to move
to another place for the purpose of employment, business, or profession and no
other benefit is fetched by the owner out of such property.