DEEMED TO BE LET OUT HOUSE AND PCP INTEREST – PRACTICE PROBLEM

 

DEEMED TO BE LET OUT HOUSE AND PCP INEREST – PRACTICE PROBLEM

 Problem

Mr.Abishek has occupied 3 houses for his residential purpose, particulars of which are as follows:

	House I	House II	House III
Standard Rent	20,000	-----	-----
Municipal Valuation	30,000	35,000	50,000
Fair Rent	18,000	35,000	60,000
Municipal Tax paid	2,400	3,600	----
Repairs	NIL	200	----
Insurance premium	1,300	600	-----
Ground Rent	7,000	400	-----

Mr.Abishek borrowed Rs.30,000 @ 20% interest p.a. for construction of house II(date of borrowing:June 1, 2017,date of repayment of loan 10.05.2025, construction of the house was completed in May 2022)

Compute the taxable income under the head house property.

Solution:

In this sum, 3 houses are self- occupied for residential purpose. But as per Income tax Act, 2 houses can be self –occupied and the other one house is to be treated let out(Deemed to be let out).

Rule: 2 houses for which GAV is higher should be treated as self-occupied

Calculation of Expected Rent

	House I	House II	House III
Municipal Valuation	30,000	30,000	50,000
Fair Rent	18,000	35,000	60,000
Whichever is higher	30,000	35,000	60,000
Standard Rent	20,000	------------	----------
Whichever is lower= Expected Rent	20,000	35,000	60,000

Calculation of Gross Annual Value           

	House I	House II	House III
Expected Rent	20,000	35,000	60,000
Actual Rent	NA	NA	NA
Whichever is higher	20,000	35,000	60,000
Less: Vacancy loss	NA	NA	NA
Gross Annual Value	20,000	35,000	60,000
	DLO	S/0	S/O

 Income from House I

Gross Annual Value	20,000
Less: Municipal Tax	2,400
Net Annual Value	17,600
Less:Deduction u/s 24 i)                    Standared Dedcution 7,600x30/100)	5,280
Income from House I -	12,320

 Income from House II

Net Annual Value		Nil
Less:Deduction u/s 24 Interest on Loan or Borrowed capital         i.            For current p.y 30,000x20/100       ii.            PCP Interest*29,000/5	6,000 5,800	11,800
Income from House I – LOSS		-11,800

 Working note:1

Interest on Pre-Construction period

PCP= 01-06-2017 to 31-03-2022

2017-2018=10 months

2018-2019= 12 months

2019-2020= 12 months

2020-2021= 12 months

2021-2022=12 months

Total   = 58 months

PCP interest= (6,000/12)x58= 29000

Income from House III

Net Annual Value		Nil
Less: Interest on Borrowed capital		Nil
Income from House I – LOSS		NIL

 INCOME FROM HOUSE PROPERTY

House I	12,320
House II	-11,800
	NIL
INCOME FROM HOSUE PROPERTY	520