Practical case study on computation of income from House Property
After discussion basic factors that are necessary for computation of income from house property, now here we can analyse the practical case study on computation of income from house property:
Case:
Mrs. A owns a house property: comprising eight let out residential unit at Bombay with following specifications:
| Rental details | Local taxation detail |
| – Fair rent of the property in Rs 61, 000,- Standard rent is Rs 60,500.
– Annual rent of Rs. 62,000 – Rateable value according to municipal records is Rs.50,000 |
– General tax: 25.5%- Water tax: 9%
– Sewage (halalkhore) tax: 5% – Education cess: 5% – Water Benefit tax 6% – Sewerage benefit tax 4% – State education tax 6% |
| Expenditure Incurred by Tenants | Expenditure by Mrs A |
| – Repairs expenditure paid by tenants 6,000 | – Insurance premium due but outstanding Rs 2,000- Annual charge created by Mrs A: Rs. 2,000 |
| Interest details | |
| – interest on borrowed capital for construction (inclusive of brokerage of Rs.1,000 for arranging loan) Rs 17,000- Date of commencement of construction: June 1994
– Date of completion of construction: January 15,1998 |
|
| 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 | – Unrealised rent of Rs 2001-02 (defaulting tenants has vacant the property) Rs. 3,000,- Unrealised rent of 2013-14 : Rs 1,590;
– Deduction allowed earlier: Rs 17860 and recovers Rs 2,100 after incurring expenditure of Rs 700 |
| Occupancy status | |
| One flat (rent Rs.600 per month) remained vacant for four months | |
Following are the notable points in the above case:
- For computing income Gross Municipal value is taken, i.e., Annual rent + Repair charges (1/9th of Rs 50,000) + water tax (Rs 4500) + Sewage (halalkhore) tax (Rs 2500) = Rs 62556
- Municipal taxes = General tax + Water tax + Sewage (halalkhore) tax + Education cess = Rs 22.250
- No treatment of repair done by tenants or Mrs A.
- All other expenses by Mrs A are irrelevant for calculation.
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 | |||
| 1. Gind out reasonable expected rent of proprty | 60,500 | ||
| Gross municipal valuation of property | 62,556 | ||
| fair rent of property | 61,000 | ||
| standared rent (As per rent control act) | 60,500 | ||
| 2. Find out rent actually received or receivable | 60,410 | ||
| Rent of PY (or that part of PY) property is available for letting out | 62,000 | ||
| Less: after excluding unrealized rent | 1,590 | ||
| 3. Loss due to vacancy | 2,400 | ||
| Period for which property is available | 96 | 12 X 8 | |
| Period for which property remain vacant | 4 | @ 600 PM | |
| Gross annual value | 58,100 | ||
| Less: Municipal taxes | 22,250 | ||
| Net annual value | 35,850 | ||
| Less:Deduction under section 24 | |||
| -Standared Deduction | 10,755 | ||
| -Interest on borrowed capital | 16,000 | 26,755 | |
| Income from HP | 9,095 | ||