Indian Income Tax Guide

Income from House Property: Deemed Ownership, Exemptions, Deductions and Tax Calculation

Income from house property is generally taxed on the annual value of a building and land attached to it, rather than simply on the cash rent received. The rules differ for self-occupied, let-out and deemed let-out properties.

1. When is income taxable as house property?

Under Section 22 of the Income-tax Act, 1961, the annual value of a building or land appurtenant to it is chargeable under the head Income from house property when the taxpayer is its owner or deemed owner, except for portions occupied for the taxpayer's own business or profession whose profits are chargeable to tax.

• The property must be a building or land appurtenant to a building. Rent from bare vacant land is generally considered under a different head.
• The assessee must be the owner or a person treated as owner under the law.
• The portion used for the owner's taxable business or profession is excluded from this head.

Rent earned by a non-owner, such as certain subletting receipts, may instead be assessed as business income or income from other sources. Classification depends on the facts and applicable law.

2. Deemed ownership: Section 27

Section 27 treats specified persons as owners for the purposes of Sections 22 to 26 even where formal title may stand in another person's name. Important situations include:

• Transfer to spouse or minor child: A person who transfers house property without adequate consideration to a spouse (other than under an agreement to live apart), or to a minor child other than a married daughter, may remain the deemed owner.
• Impartible estate: The holder of an impartible estate is deemed owner of the properties comprising that estate.
• Co-operative society or company allotment: A member allotted or leased a building or part of one under a house-building scheme may be deemed its owner.
• Possession under qualifying contracts: A person allowed to take or retain possession in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 may be deemed owner, subject to legal requirements including registration where applicable.
• Long-term rights: A person acquiring qualifying rights in a building through a lease or arrangement covered by Section 269UA(f) may be deemed owner; statutory exceptions apply, including certain short-term leases.

3. Exemptions and properties outside this head

Not every receipt associated with a building is taxable under this head. The treatment depends on the relevant exemption and its conditions:

• Agricultural income and farm buildings: Qualifying income may fall within the agricultural-income definition in Section 2(1A) and be exempt under Section 10(1). Merely calling a building a farmhouse does not establish exemption.
• Registered trade unions: Specified income of eligible registered trade unions may be exempt under Section 10(24).
• Political parties: Qualifying income may be exempt under Section 13A, subject to statutory conditions.
• Charitable or religious trusts: Sections 11 and 12 and applicable registration and compliance requirements may provide exemption.
• Property used for the owner's business: Section 22 excludes the qualifying business-occupied portion from the house-property charge.
• Self-occupied homes: The annual value of up to two qualifying properties may be taken as nil under Section 23; this is a valuation concession, not an unrestricted exemption from all tax rules.

4. Self-occupied, let-out and deemed let-out property

Self-occupied property

Under Section 23(2) and (4), an owner may claim nil annual value for up to two qualifying houses, chosen by the taxpayer. The concession also covers a house that cannot actually be occupied for the reasons specified in the provision. It generally does not apply where the property is actually let out or another benefit is derived from it.

Let-out property

Where a property is rented to a tenant, annual value is determined under Section 23(1), considering expected rent, actual rent and relevant adjustments for vacancy or unrealised rent.

Deemed let-out property

If more than two houses qualify for the self-occupied concession, the additional houses are ordinarily treated as deemed let out, and their notional annual value must be computed even if no tenant occupies them.

5. How annual value is calculated: Section 23

The expected rent is ordinarily based on the higher of municipal valuation and fair market rent, restricted to standard rent where rent-control legislation applies. This is compared with actual rent received or receivable, subject to the statutory rules on vacancy and unrealised rent.

1. Determine municipal value and fair rent for comparable properties.
2. Determine expected rent, applying the standard-rent ceiling where applicable.
3. Compare expected rent with actual rent received or receivable; apply the special vacancy rule if its conditions are satisfied.
4. Exclude qualifying unrealised rent according to the prescribed rules.
5. Deduct municipal or local authority taxes actually paid by the owner during the relevant year to arrive at net annual value.

Municipal taxes are not automatically deductible merely because they have been assessed or paid by a tenant. Rent actually received above standard rent can also affect the annual value.

6. Deductions under Section 24

The Rs. 2,00,000 ceiling generally requires a loan taken on or after 1 April 1999 for acquisition or construction, completion within five years from the end of the financial year of borrowing, and the prescribed interest certificate. The Rs. 30,000 ceiling generally applies to repair, renewal or reconstruction and other non-qualifying cases. The applicable ceiling is an aggregate limit for the eligible self-occupied properties, not a separate Rs. 2,00,000 allowance for each home.

Pre-construction interest: Eligible interest relating to the period before the year of acquisition or completion may be claimed in five equal annual instalments beginning with the year of acquisition or completion, subject to the relevant conditions and limits.

Important correction: The 30% standard deduction is not denied simply because a tenant pays for repairs. It is a statutory deduction, not reimbursement of actual expenses.

7. Example: calculation for a let-out house

Assume a residential house has gross annual value of Rs. 3,60,000, municipal taxes of Rs. 20,000 paid by the owner and eligible home-loan interest of Rs. 1,40,000.

Illustrative computation only; it assumes the stated gross annual value has already been correctly determined under Section 23.

8. Losses and the old or new tax regime

Under the old regime, a house-property loss may generally be set off against other heads of income up to Rs. 2,00,000 in a year under Section 71(3A), with eligible unabsorbed house-property loss carried forward for up to eight assessment years under Section 71B. Under the new regime, restrictions apply: a house-property loss cannot be set off against income under another head, and the special carry-forward treatment under that regime must be checked before filing.

9. Official law and guidance

• Income Tax Department: Self-occupied house property and exemptions
• Income Tax Department: Let-out house property and deductions
• Section 23: Annual value
• Section 24: Deductions from house-property income
• Income Tax Department: Old versus new tax regime FAQs
• Income Tax e-Filing portal

Information updated 8 October 2026. Tax treatment depends on the applicable tax year, amendments, elections and individual facts. Consult current legislation or a qualified tax adviser before filing.