Let Out House Property [Sec. 23(1)]

Computation of Income from house property of ...... for the Assessment Year .......

# Unrealised Rent [Rule 4 ] : Unrealised Rent of current year shall be deducted in full from Actual Rent Receivable, provided the following conditions are satisfied:

• The tenancy is bona fide ;
  

• The defaulting tenant has vacated the property or steps have been taken to compel him to vacate the property;
  

• The defaulting tenant is not in occupation of any other property of the assessee;
  

• The assessee has taken all reasonable steps to institute legal proceeding for the recovery of the unpaid rent or has satisfied the Assessing Officer that legal proceedings would be worthless.

Taxes levied by local authority (Municipal Tax) [Proviso to sec. 23(1)]

• It should be actually paid during the previous year.
  

• It must be borne by the assessee.
  

• It must be related to the previous year or any year preceding the previous year.

Notes:

• Municipal tax exceeds GAV (Negative NAV): In case municipal tax paid includes tax paid for several past years and the total amount of tax so paid by the owner exceeds GAV, then Net Annual Value (NAV) can be negative.
  

• Refund of municipal tax: Refund of Municipal tax paid for a property is not taxable u/s 22.
  

• Advance Municipal Tax paid by assessee: Municipal tax paid in advance is not allowed, as the Act provides that 'the taxes levied by any local authority in respect of property shall be deducted, irrespective of the previous year in which the liability to pay such taxes was incurred by the owner.' [Proviso to sec. 23 of Income tax Act, 1961]
  As per the above language it is construed that for claiming deduction in respect of municipal tax, such tax must have already been levied by the local authority. Hence payment of municipal tax in advance ( liability in respect of which has not yet incurred ) shall not be allowed as deduction in the year of payment.

Deductions u/s 24

• Standard deduction u/s 24(a): 30% of the net annual value is allowed as standard deduction in respect of all expenditures (other than interest on borrowed capital) irrespective of the actual expenditure incurred.
  

• Interest on loan or borrowed capital u/s 24(b): Interest payable on amount borrowed for the purpose of purchase, construction, renovation, repairing, extension, renewal or reconstruction of house property can be claimed as deduction on accrual basis .

For the purpose of calculation, interest on loan is divided into two parts:

(i) Interest for pre-construction period

Meaning : Pre-construction period means the period starting from the day of commencement of construction or the day of borrowing whichever is later and ending on March 31 immediately prior to the year of completion of construction.

Treatment : Interest for pre-construction period (to the extent it is not allowed as deduction under any other provisions of the Act) will be accumulated and claimed as deduction over a period of 5 continuous years in equal installments commencing from the year of completion of construction.

(ii) Interest for post-construction period

Meaning : Post-construction period means the period starting from the beginning of the year in which construction is completed and continues until the loan is repaid.

Treatment : It can be fully claimed as deduction in the respective year(s).

Other Points

1. Interest paid on fresh loan, which is taken to repay the original loan (being taken for above-mentioned purpose) shall be allowed as deduction.
   

2. Interest on new loan, taken for paying outstanding interest on old loan, is not deductible
   

3. Amount paid as brokerage or commission, for arrangement of the loan, is not deductible.
   

4. Interest on loan taken for payment of municipal tax, etc. is not allowed as deduction.

Amount not deductible from Income from house property [Sec. 25]
Any interest chargeable under this Act which is payable outside India , is not allowed as deduction if -

-  on such interest, tax has not been deducted at source and paid as per the provision of chapter XVIIB; and

-  in respect of such interest there is no person in India who may be treated as an agent u/s 163.