Answer:

Gross Annual Value (GAV):

• GAV is the annual rent that a property is expected to fetch
• It is determined by comparing Expected Rent and Actual Rent
• Higher of the two is taken as GAV
• Unrealized rent can be deducted if recovery action is initiated

Expected Rent Calculation:

1. Compare Municipal Value and Fair Rent - take HIGHER
2. Compare this amount with Standard Rent - take LOWER (if Standard Rent is applicable)
3. This gives Expected Rent

Net Annual Value (NAV):

• NAV = GAV - Municipal Taxes paid by owner
• Only taxes actually paid during the year are deductible
• NAV is the base for calculating standard deduction

Example:

Calculation:

Notes:

• Pre-construction interest is spread over 5 years (1/5th = ₹60,000 per year)
• For let out property, there is no limit on interest deduction
• Loss of ₹82,000 can be set off against other income
• Remaining 4/5th (₹2,40,000) will be allowed in subsequent 4 years

Answer:

Essential Conditions for Chargeability (Section 22):

ALL four conditions must be satisfied simultaneously:

1. Ownership of Property:
   • Assessee must be the legal owner of the property
   • Deemed ownership is also included
   • Example: Mr. A owns a flat - he is the owner
2. Buildings or Lands Appurtenant:
   • Property should consist of buildings or land attached to building
   • Example: House with garden - both are covered
3. Not Used for Business/Profession:
   • Property should not be used for owner's business or profession
   • If used for business - taxable under "Business Income"
   • Example: If Mr. A uses his flat for his CA practice - not taxable under house property
4. Annual Value Determinable:
   • It must be possible to determine annual rental value
   • Example: Habitable property has determinable value

Properties Exempt from Tax [Section 23(1)]:

Important Note: If property is partly let out and partly used for business, proportionate income is taxable under house property.

Analysis:

Maximum 2 properties can be treated as self-occupied. The third property will be deemed let out with Annual Value calculated as per expected rent.

Strategy: Choose properties with HIGHEST interest as self-occupied (subject to ₹2,00,000 limit) to maximize deduction.

Option 1: Treat A & B as Self-Occupied, C as Deemed Let Out

Recommendation: Treat Properties A and B as self-occupied as they have higher interest amounts. This maximizes the loss that can be set off against other income.

Note: In the absence of expected rent for Property C, we have assumed a notional amount. The actual computation would depend on Fair Rent, Municipal Value, and Standard Rent.

Answer:

Example:

If property has NAV of ₹3,00,000 and interest of ₹1,50,000:

• If Let Out: Income = ₹3,00,000 - ₹90,000 (30%) - ₹1,50,000 = ₹60,000
• If Self Occupied: Income = ₹0 - ₹0 - ₹1,50,000 = ₹(1,50,000)

Answer:

Unrealized Rent: Rent which could not be realized from the tenant during the previous year.

Conditions for Deduction:

1. Tenant's Default: Rent has not been received due to tenant's inability to pay
2. Vacancy: Tenant has vacated the property
3. Legal Action: Owner has taken all reasonable steps to recover the rent, including legal proceedings
4. Not Recoverable: The Assessing Officer is satisfied that the rent cannot be recovered

Treatment:

• Unrealized rent is DEDUCTED from Actual Rent Received
• If later recovered, it will be taxable in the year of recovery

Example:

Solution:

Note: Vacancy period is automatically adjusted in actual rent. GAV is higher of expected and actual rent.

Answer:

Municipal Taxes - Key Points:

1. Deductible from GAV: Municipal taxes are deducted from GAV to arrive at NAV
2. Who Pays: Only taxes paid by the OWNER are deductible. Taxes paid by tenant are NOT deductible
3. When Paid: Taxes must be actually PAID during the previous year. Mere liability or assessment is not sufficient
4. Types of Taxes: Includes property tax, house tax, sewerage tax, drainage tax, etc.

Formula:

NAV = GAV - Municipal Taxes (paid by owner during the year)

Example:

Note: ₹10,000 paid by tenant is not deductible. Unpaid assessed tax of ₹10,000 is also not deductible.

Answer:

Tax Treatment of Multiple Self-Occupied Properties:

Rule: Maximum TWO properties can be treated as self-occupied. Remaining properties are deemed let out.

Advice for Mrs. Gupta (4 properties):

1. Choose 2 as Self-Occupied:
   • Annual Value = NIL
   • Interest deduction: Maximum ₹2,00,000 per property
   • No 30% standard deduction
   • Usually results in loss
2. Remaining 2 are Deemed Let Out:
   • Annual Value calculated as per expected rent
   • Standard deduction @ 30% allowed
   • Interest - no limit

Strategy: Choose properties with HIGHEST interest (up to ₹2,00,000) as self-occupied to maximize tax benefit.

Example Scenario:

Answer:

Standard Deduction [Section 24(a)]:

• Rate: 30% of Net Annual Value (NAV)
• Purpose: To cover repairs, collection charges, and other maintenance expenses
• Applicability: Allowed ONLY for LET OUT property
• Not Allowed: For SELF-OCCUPIED property
• Nature: Flat deduction - no actual expenses need to be proved

Example:

If NAV = ₹3,00,000

Standard Deduction = 30% of ₹3,00,000 = ₹90,000

Answer:

Expected Rent: It is the rent that a property is expected to fetch in the market.

Calculation:

1. Compare Municipal Value and Fair Rent
2. Take HIGHER of the two
3. Compare with Standard Rent (if applicable)
4. Take LOWER value (restricted to Standard Rent)

Formula:

Expected Rent = Higher of (Municipal Value, Fair Rent), subject to Standard Rent

Example:

• MV = ₹2,00,000, FR = ₹2,50,000, SR = ₹2,20,000
• Higher of MV and FR = ₹2,50,000
• Restricted to SR = ₹2,20,000
• Expected Rent = ₹2,20,000

Answer:

Interest Deduction for Self-Occupied Property:

• Maximum Limit: ₹2,00,000 per year
• Applicable for: Loan taken for purchase, construction, repair, or renewal
• Pre-construction Interest: 1/5th allowed for 5 years (within ₹2,00,000 limit)
• Excess Interest: Cannot be carried forward or claimed

Special Case - Loan for Repairs:

• If loan taken only for repairs/renewal: Maximum ₹30,000

Example:

If actual interest paid = ₹2,80,000

Deduction allowed = ₹2,00,000

Disallowed amount = ₹80,000 (cannot be claimed)

Solution:

Note: Municipal tax of ₹20,000 paid by tenant is NOT deductible. Only tax paid by owner is allowed as deduction.

Answer:

Properties Exempt from Taxation:

1. Agricultural Land: Land used exclusively for agricultural operations
2. Property for Own Business/Profession: Property used entirely for assessee's business or profession
3. Property Not Capable of Earning Income: Property which cannot be occupied due to its condition or legal restrictions
4. Palace of Ex-Ruler: Palace of an ex-ruler which is not let out and remains with the ex-ruler (special provision)

Note: For properties exempt under points 1 & 2, the entire property must be used for that purpose. Partial use will result in proportionate taxation.