Ashish Gupta, June 17, 2007
The Economic Times (Delhi edition)

Generally, the actual income received or receivable by a person is subject to income tax. A slightly different twist is given under the Income Tax Act as far as income from house properties is concerned. In this case, not only the actual income, but also deemed income or notional income is made liable to tax. The Income Tax Act provides a separate head for taxation of income from a house.

In order to be taxable the assessee must be the owner of the property. Further, the property should consist of buildings or land adjacent to it. Also, the property must not be used for the purpose of any business or profession by the assessee. In addition, the property must either be used or capable of being used for renting out and deriving rental income.

In case the individual or Hindu undivided family (HUF) has only one self-occupied residential property, that property will be treated as self-occupied property. There will be no taxable income in respect of such property provided the owner has not let-out the property for any time during the year, or earned any benefits from it.

In case the assessee owns more than one property, this exemption applies to only one self-occupied house. The owner has the discretion to choose that property. Deemed income from all other properties is taxable, even if they are self-occupied and no rental income is derived from such properties. The assessee, at his option, may choose any one property as self-occupied .The remaining properties even if not actually let-out, will be deemed to be let-out, and notional rental value will be treated as taxable income in the hands of the owner.

In case of a house, it is the annual value of the property and not the actual rent which is taxable. Annual value means the capacity of the property to earn income, which may be more than the actual rent received or receivable by the owner of the property. In order to determine the annual value, the highest of municipal value or fair rental value of a similar property in a similar locality is taken. In case the higher of the two exceeds the standard rent of the property determined in accordance with the Rent Control Act, the standard rent will be treated as taxable rental value of the property
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