COMPUTATION OF INCOME FROM LET-OUT PROPERTIES

Thursday, 27 August 2015

COMPUTATION OF INCOME FROM LET-OUT PROPERTIES

Computation of income from house property is to be made as per the provisions of Section 23 and 24 of Income tax Act, 1961 for every assessment year, commencing from assessment year 2002-2003 onwards.

There are two significant changes from the earlier method, and they are:

The method of allowing deductions towards vacancies and unrealized rent after computing the net annual value is discontinued. Instead, these deductions will be considered at the beginning itself to arrive at annual gross value.

Various deductions are merged and 30%* of net annual value is allowed. However deduction of interest allowed on borrowed capital continues.

The following procedure navigate the steps in computing the income from house property.

Arriving of gross annual value.
Determining net annual value.
Additions towards specified terms.

*Plz check the percentage for latest period.

Details of the property for the financial year 2002-2003
1	Municipal valuation	Rs.30,000-00
2	Reasonable rent.	Rs.40,000-00
3	Standard rent	Rs.32,000-00
4	Actual rent receivable at Rs.2,500/- p.m.	Rs.30,000-00
5	Municipal Taxes paid	Rs. 3,000-00
6	Interest on Loan borrowed to construct the house	Rs.10,000-00
7	Rent collection charges.	Rs. 2,000-00
8	Property remained vacant for two months during the period Nov and Dec. 2002
Income from the house property is computed as follows:
	Gross annual value (See Note No.1. herein below)	Rs.25,000-00
	Deduct Municipal taxes paid	Rs. 3,000-00
	Net Annual value (A)	Rs.22,000-00
	Deductions
	Deduct 30% of the net annual value (See Note No.2. herein below)	Rs. 6,600-00
	Deduct Rs.10,000/- (being the interest on borrowed capital)	Rs. 10,000-00
	Total Deduction (B)	Rs.16,600-00
	Total Income from House Property (A less B)	Rs. 5,400-00
	Note 1: Gross Annual value – The Actual rent receivable at Rs.2,500/- per month is adopted, since it is less than Standard rent. Actual rent received is only Rs.25,000/- since the property was vacant during Nov. and Dec. 2002.
	Note 2: An over all deduction of 30%of the net annual value is allowed. No separate deduction is allowed towards collection charges.