Income from a let-out house property
Work through gross annual value, municipal taxes, standard deduction and interest to reach taxable income from house property.
Marks
6 marks
Exam time
10 min
Difficulty
Moderate
The question
Compute the income from house property for a let-out property from the following: municipal value ₹2,40,000; fair rent ₹2,60,000; standard rent ₹2,50,000; actual rent received ₹22,000 per month; municipal taxes paid by the owner during the year ₹24,000; interest on a loan taken for the property ₹1,50,000. The property was let out for the whole year.
- Given
- Municipal value = ₹2,40,000Fair rent = ₹2,60,000Standard rent = ₹2,50,000Actual rent = ₹22,000 × 12 = ₹2,64,000Municipal taxes paid = ₹24,000Interest on loan = ₹1,50,000
Formulas used
- Expected rent = higher of municipal value and fair rent, restricted to standard rent
- Gross annual value = higher of expected rent and actual rent received
- Net annual value = GAV − municipal taxes actually paid by the owner
- Income from house property = NAV − 30% standard deduction − interest on borrowed capital
Step-by-step working
01Compute the expected rent
1.5Higher of municipal value and fair rent: Municipal value ₹2,40,000 Fair rent ₹2,60,000 ← higher Restricted to standard rent ₹2,50,000 Expected rent ₹2,50,000
Two comparisons, in this order. Take the higher of municipal value and fair rent first, then cap that figure at standard rent — never the other way round.
02Compute the gross annual value
1Expected rent ₹2,50,000 Actual rent (₹22,000 × 12) ₹2,64,000 ← higher Gross annual value ₹2,64,000
GAV is the higher of expected rent and actual rent. Here the actual rent exceeds the capped expected rent, so it becomes the GAV.
03Deduct municipal taxes
1Gross annual value ₹2,64,000 Less: Municipal taxes paid ₹ 24,000 ───────── Net annual value ₹2,40,000Only taxes actually paid by the owner during the year are deductible. Taxes merely levied, or borne by the tenant, are not.
04Apply the deductions under section 24
2.5Net annual value ₹2,40,000 Less: Standard deduction @ 30% ₹ 72,000 Less: Interest on borrowed cap. ₹1,50,000 ───────── Income from house property ₹ 18,000The 30% is computed on net annual value, never on gross annual value. This single step is the most common error in the chapter.
Income from house property
₹18,000
Where marks are lost
- Computing the 30% standard deduction on GAV instead of NAV.
- Capping at standard rent before comparing municipal value with fair rent, which reverses the prescribed order.
- Deducting municipal taxes that were levied but not actually paid during the year.
- Claiming actual repairs and insurance separately — the 30% is a flat statutory deduction that replaces all such expenses, whatever they actually were.
- Applying the ₹2,00,000 interest cap to a let-out property; that ceiling applies to self-occupied property.
In the exam
House property is one of the most formula-driven heads in the syllabus, which makes it reliable marks if the sequence is memorised. Write the four-line format — expected rent, GAV, NAV, deductions — before you substitute any numbers.
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Talk to usIs the 30% deduction available even if no expenses were incurred?
Yes. The 30% of net annual value is a flat statutory deduction and is allowed regardless of what the owner actually spent on repairs, collection or insurance. Actual expenses are neither added to it nor claimed separately.
How is interest treated differently for a self-occupied property?
For a self-occupied property the annual value is nil and interest deduction is capped, whereas for a let-out property interest on borrowed capital is deductible in full as computed above. Check which the question describes before applying any ceiling, and note that treatment also depends on the tax regime the assessee has chosen.
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