Computation of Income from House Property (Partly Let Out & Partly Self-Occupied)

When a property is partly self-occupied (SOP) and partly let out (LOP), the Income Tax Act treats it as two separate properties for computation purposes.

Step-by-Step Calculation

1. Segregate the Property into Two Parts

• Self-Occupied Portion (SOP)→ Treated as one house property.
• Let-Out Portion (LOP)→ Treated as another house property.

2. Compute Income for Each Portion Separately

(A) Self-Occupied Portion (SOP)

• Annual Value (AV)= Nil (since it is self-occupied).
• Deduction under Section 24(b):
  • Interest on housing loan (if any) → Maximum ₹2 lakh(if loan taken after 1-4-1999).
• Taxable Income from SOP= 0 – Interest Deduction = Negative value allowed (loss).

(B) Let-Out Portion (LOP)

• Gross Annual Value (GAV)= Higher of:
  • Actual Rent Received(for let-out portion).
  • Expected Rent(Municipal Value / Fair Rent / Standard Rent, whichever is lower) proportionate to let-out area.
• Less: Municipal Taxes(if paid, proportionate to let-out portion).
• Net Annual Value (NAV)= GAV – Municipal Taxes.
• Deductions under Section 24:
  1. Standard Deduction= 30% of NAV.
  2. Interest on Housing Loan(proportionate to let-out portion) → No upper limit.
• Taxable Income from LOP= NAV – (Standard Deduction + Interest).

3. Final Income from House Property

= Taxable Income from SOP (usually negative) + Taxable Income from LOP.

Example Calculation

Facts:

• A property has 60% self-occupiedand 40% let out.
• Municipal Value (MV)= ₹3,00,000 (Full Year).
• Fair Rent (FR)= ₹3,60,000 (Full Year).
• Standard Rent (SR)= ₹3,30,000 (Full Year).
• Actual Rent Received (Let-out portion)= ₹12,000/month (₹1,44,000/year).
• Municipal Taxes Paid= ₹20,000 (Full Year).
• Home Loan Interest= ₹2,50,000 (Full Year).

Step 1: Compute for Let-Out Portion (40%)

• Expected Rent= Lower of (MV, FR, SR) = ₹3,00,000 (MV).
• Proportionate Expected Rent (40%)= ₹1,20,000.
• Actual Rent (40%)= ₹1,44,000.
• Gross Annual Value (GAV)= Higher of (₹1,20,000 or ₹1,44,000) = ₹1,44,000.
• Less: Municipal Taxes (40%)= ₹8,000.
• Net Annual Value (NAV)= ₹1,44,000 – ₹8,000 = ₹1,36,000.
• Deductions:
  • Standard Deduction (30% of NAV)= ₹40,800.
  • Interest on Loan (40% of ₹2,50,000)= ₹1,00,000.
• Taxable Income (LOP)= ₹1,36,000 – (₹40,800 + ₹1,00,000) = ₹(4,800) [Loss].

Step 2: Compute for Self-Occupied Portion (60%)

• Annual Value= Nil.
• Interest on Loan (60% of ₹2,50,000)= ₹1,50,000.
• Deduction Allowed (Max ₹2 lakh)= ₹1,50,000 (fully allowed).
• Taxable Income (SOP)= 0 – ₹1,50,000 = ₹(1,50,000) [Loss].

Step 3: Final Income from House Property

= Loss from SOP (₹-1,50,000) + Loss from LOP (₹-4,800)

= Total Loss = ₹(1,54,800)

This loss can be adjusted against other heads of income (up to ₹2 lakh per year under Section 71).

Key Points to Remember

1. Proportionate Calculation: All values (rent, municipal taxes, interest) must be split as per the let-out and self-occupied ratio.
2. Interest Deduction Cap:

• SOP: Max ₹2 lakh (if loan taken after 1-4-1999).
• LOP: No limit.

3. Loss Adjustment: Loss from house property can be set off against other income (salary/business).