Taxation Laws
Income from House Property: Sections 20 to 25
Income from house property taxes the annual value of buildings a person owns, not the rent as such. Even an empty or self-occupied property can carry a notional value, subject to the relief for self-occupied homes. Sections 20 to 25 of the Income-tax Act, 2025 correspond to sections 22 to 27 of the 1961 Act. This note covers the charge, the computation and the boundary with business income.
1. The Charge: Section 20
Figure 1: Three conditions
- Building or land appurtenant. The head covers buildings and land attached to them; rent from vacant land is income from other sources.
- Ownership. The assessee must be the owner; a tenant who sub-lets is taxed on the sub-letting income under another head.
- Own business excluded. Property used for the owner's own business or profession, the profits of which are taxable, is outside this head.
2. Computation: Sections 21 and 22
Figure 2: From annual value to income
- Annual value, s.21. The higher of the sum for which the property might reasonably be expected to let and the actual rent received or receivable; where vacancy lowers the actual rent, the lower figure applies.
- Municipal taxes. Deducted in the year in which the owner actually pays them.
- Self-occupied houses. The annual value of up to two houses occupied by the owner for his residence is nil.
- Standard deduction, s.22. Thirty per cent of the annual value, irrespective of actual repair costs.
- Interest, s.22. Interest on capital borrowed to acquire, construct or repair the property is deductible; for self-occupied property, the cap is Rs 2 lakh for acquisition or construction and Rs 30,000 otherwise; interest before completion is allowed in five equal instalments from the year of completion.
3. Arrears, Unrealised Rent and Co-owners
- Section 23. Arrears of rent and unrealised rent later received are taxed in the year of receipt, even if the person is no longer the owner, after a deduction of thirty per cent.
- Section 24. Where co-owners have definite and ascertainable shares, each is taxed on his share and not as an association of persons; each may claim self-occupied relief.
4. House Property or Business?
Figure 3: The boundary with business income
In East India Housing and Land Development Trust v CIT (1961), rent from shops and stalls was held to be income from house property, though the company's object was to develop land. In Chennai Properties and Investments v CIT (2015), the Court held that where letting out property is the main object and business of a company, the rent is business income. The question depends on the nature of the activity and the assessee's business.
⚠ Exam trap House property income needs a building or appurtenant land, ownership, and use other than the owner's own business. Annual value is the higher of reasonable expected rent and actual rent, reduced for vacancy and by municipal taxes paid. Up to two self-occupied houses have nil annual value. Deduct thirty per cent of annual value and interest; for self-occupied property, interest is capped at Rs 2 lakh, with pre-construction interest in five instalments. Arrears and unrealised rent are taxed on receipt after thirty per cent. |
5. Frequently Asked Questions
How many self-occupied houses can have nil annual value?
Up to two houses occupied by the owner for his own residence, under s.21 of the 2025 Act.
Is rent from vacant land taxed as house property income?
No. The head covers buildings and land appurtenant to them. Rent from vacant land is taxed as income from other sources.
6. Related Topics
- Topic 13: Income from Salaries. The first head.
- Topic 15: Profits and Gains of Business or Profession. The boundary.
- Topic 18: Clubbing, Set Off and Carry Forward. House property losses.