Computation in case of two house properties
After discussion basic factors that are necessary for computation of income from house property, now we can analyse the practical case study on computation of income from house property:
Case:
Mrs. A owns a house property: comprising two residential unit – units 1 and unit 2. While unit 1 is self –occupied by A for his residential purposes. Unit 2 is let out. Following are the other specifications:
| Rental details | Local taxation detail (Paid by Mrs A) |
| – Fair rent of the property in Rs 140000- Standard rent is Rs 125,000.- Annual rent of Rs. 144,000- Rateable value according to municipal records is Rs.130,000 | – General tax: 12% |
| Expenditure Incurred by Tenants | Expenditure by Mrs A |
| – Repairs expenditure Rs 250 | – Insurance premium due but outstanding Rs 600 |
| Interest details | |
| – interest on borrowed capital for construction Rs 63000 | |
| Rental Recovery Expenses | Unrealized Rent |
| – Legal charges for notice sent to three tenants for arrears of rent: Rs 4,00;- Collection charges payable Rs 219 | – Rent of 2 months could not be recovered. |
| Occupancy status | |
| One unit (rent Rs.6000 per month) is rented for whole year. | |
Following are the notable points in the above case:
Point 1. It is always batter to take share of each unit based of area covered by each unit. In case information is not available it is always safer to presume share as 50%. Hence analysis of rental values for computation of income from house property will be as below:
| Basis of computation | Deemed Income of HP | Share of HP Self Occupied | Share of HP rented |
| Fair Rent | 140000 | 70000 | 70000 |
| Standard Rent | 125000 | 62500 | 62500 |
| Annual Rent | 144000 | 72000 | 72000 |
| Rentable value as per municipal records | 130000 | 65000 | 65000 |
| * In case property / unit is self occupied, Gross Annual Value of property / unit shall be taken as NIL | |||
Point 2. Here one property is identified as self occupied. In case more than one properties are self occupied, it is better to compute income from each such unit separately and avail option of house property which is having highest income to reduce your tax bill to minimum.
Point 3. No treatment of repair done by tenants or Mrs A.
Point 4. All other expenses by Mrs A are irrelevant for calculation.
Point 5. Interest up to Rs 200,000 is deductible in case of self occupied property.
Now calculation of property income for Mrs A shall be given below:-
| Income from a let out house property is determined as under:- | |||
| 1. Calculation of Gross Annual Value | Unit 1 – SO | Unit 2 | |
| 1. Find out reasonable expected rent of property | – | 62,500 | |
| Gross municipal valuation of property | – | 65,000 | |
| Fair rent of property | – | 70,000 | |
| Standard rent (As per rent control act) | – | 62,500 | |
| 2. Find out rent actually received or receivable | – | 60,000 | |
| Rent of PY (or that part of PY) property is available for letting out | – | 72,000 | |
| Less: after excluding unrealized rent | – | 12,000 | |
| 3. Loss due to vacancy | – | – | |
| Period for which property is available | – | ||
| Period for which property remain vacant | – | ||
| Gross annual value | – | 62,500 | |
| Less: Municipal taxes | – | 7,800 | |
| Net annual value | – | 54,700 | |
| Less:Deduction under section 24 | |||
| -Standared Deduction | – | 16,410 | |
| -Interest on borrowed capital | 31,500 | 31,500 | |
| 31,500 | 47,910 | ||
| Income from HP | -31,500 | 6,790 | |
| Total Income From House Property | -24,710 | ||