JK SHAH CLASSES Direct Tax – CA Inter May’2025
CHAPTER 3: INCOME FROM HOUSE PROPERTY
Charging Section 22 :
The Annual Value of Property being
Building or Land Appurtenant Thereto
Of which Assessee is the Owner
Shall be chargeable to tax as Income From House Property… …
Points to Remember :
❖ Annual Value refers to Net Annual Value [to be calculated in accordance with Section 23]
❖ Building includes :
o Residential Buildings like Flats, Bungalows, Row Houses etc.
o Commercial Buildings like Shops, Godowns, Office Building, Factory Building etc.
❖ Land Appurtenant Thereto means “Land Attached to Building”
Like, Courtyard, Parking Space, Swimming Pool etc. in the immediate vicinity of a Building
❖ Rent from Open (Vacant) Plot of Land is not Income from House Property
It will be Taxable as Other Sources
Illustrations:
1. Plot of Land let out for Marriage Functions or
2. Land given on rent for School Annual Day Celebrations or Sports Events
P a g e 1 | 27 Prof. Chirag Goyal
,JK SHAH CLASSES Direct Tax – CA Inter May’2025
❖ Rent from Subletting is also covered under Income from Other Sources
Illustration:
Mr. Ratan (Owner of a 3 Bedroom Flat) has let out the flat to Mr. Junaid for ₹ 75,000 per month. Mr.
Junaid finds the house too big for his family, hence, he has sublet 1 Room to Mr. Deepak for ₹ 20,000
per month.
Income of Mr. Ratan Income from House Property (Since, he is Owner)
Income of Mr. Junaid Income from Other Sources (Since, he is NOT the Owner)
❖ Property MUST NOT be used for OWN Business / Profession by the Assessee. If it is used
for own business / profession purpose, it is treated as a Business Property.
Any Income incidental to such a property, shall be taxable as Profits & Gains from
Business / Profession
Illustrations:
1. Rent from Guest House given to employees to be used as Staff Quarter for residence
2. Unutilised office space rented to free-lance professionals on ‘rent a desk’ basis
Note:
If a same Property is partly used for Business and partly used for Residential purpose, then only
the portion which is used for residence shall be treated as a House Property, rest will be treated
as a Business Property.
Illustration:
Mr. Vinay has a Bungalow with two floors, wherein 1st floor is used for Residence and the Ground Floor
is used for Business. In such case, 1st Floor shall be treated as a House Property and the Ground Floor
shall be treated as a Business Property.
P a g e 2 | 27 Prof. Chirag Goyal
, JK SHAH CLASSES Direct Tax – CA Inter May’2025
Determination of Annual Value [Section 23] :
Annual Value means,
Net Annual Value i.e.,
Gross Annual Value – Municipal Taxes paid towards the property during the year
Calculation of Gross Annual Value :
Step 1 : Calculate Expected Rent as below,
Municipal Rent (Value) XX
or
Fair Rent (Value) XX
Higher of above XX
or
Standard Rent (As per Rent Control Act) XX
Lower of above is,
Expected Rent [ER] XX
Step 2 : Take Actual Rent Due [AR] XX
Actual Rent Due is the Rent for the period for which property was let-out
If Property was let-out for entire year :
Gross Annual Value [GAV] = Expected Rent [ER]
Or
Actual Rent [AR]
P a g e 3 | 27 Prof. Chirag Goyal
CHAPTER 3: INCOME FROM HOUSE PROPERTY
Charging Section 22 :
The Annual Value of Property being
Building or Land Appurtenant Thereto
Of which Assessee is the Owner
Shall be chargeable to tax as Income From House Property… …
Points to Remember :
❖ Annual Value refers to Net Annual Value [to be calculated in accordance with Section 23]
❖ Building includes :
o Residential Buildings like Flats, Bungalows, Row Houses etc.
o Commercial Buildings like Shops, Godowns, Office Building, Factory Building etc.
❖ Land Appurtenant Thereto means “Land Attached to Building”
Like, Courtyard, Parking Space, Swimming Pool etc. in the immediate vicinity of a Building
❖ Rent from Open (Vacant) Plot of Land is not Income from House Property
It will be Taxable as Other Sources
Illustrations:
1. Plot of Land let out for Marriage Functions or
2. Land given on rent for School Annual Day Celebrations or Sports Events
P a g e 1 | 27 Prof. Chirag Goyal
,JK SHAH CLASSES Direct Tax – CA Inter May’2025
❖ Rent from Subletting is also covered under Income from Other Sources
Illustration:
Mr. Ratan (Owner of a 3 Bedroom Flat) has let out the flat to Mr. Junaid for ₹ 75,000 per month. Mr.
Junaid finds the house too big for his family, hence, he has sublet 1 Room to Mr. Deepak for ₹ 20,000
per month.
Income of Mr. Ratan Income from House Property (Since, he is Owner)
Income of Mr. Junaid Income from Other Sources (Since, he is NOT the Owner)
❖ Property MUST NOT be used for OWN Business / Profession by the Assessee. If it is used
for own business / profession purpose, it is treated as a Business Property.
Any Income incidental to such a property, shall be taxable as Profits & Gains from
Business / Profession
Illustrations:
1. Rent from Guest House given to employees to be used as Staff Quarter for residence
2. Unutilised office space rented to free-lance professionals on ‘rent a desk’ basis
Note:
If a same Property is partly used for Business and partly used for Residential purpose, then only
the portion which is used for residence shall be treated as a House Property, rest will be treated
as a Business Property.
Illustration:
Mr. Vinay has a Bungalow with two floors, wherein 1st floor is used for Residence and the Ground Floor
is used for Business. In such case, 1st Floor shall be treated as a House Property and the Ground Floor
shall be treated as a Business Property.
P a g e 2 | 27 Prof. Chirag Goyal
, JK SHAH CLASSES Direct Tax – CA Inter May’2025
Determination of Annual Value [Section 23] :
Annual Value means,
Net Annual Value i.e.,
Gross Annual Value – Municipal Taxes paid towards the property during the year
Calculation of Gross Annual Value :
Step 1 : Calculate Expected Rent as below,
Municipal Rent (Value) XX
or
Fair Rent (Value) XX
Higher of above XX
or
Standard Rent (As per Rent Control Act) XX
Lower of above is,
Expected Rent [ER] XX
Step 2 : Take Actual Rent Due [AR] XX
Actual Rent Due is the Rent for the period for which property was let-out
If Property was let-out for entire year :
Gross Annual Value [GAV] = Expected Rent [ER]
Or
Actual Rent [AR]
P a g e 3 | 27 Prof. Chirag Goyal
