Cases where the annual value of a house property is not charged to tax (as set, 1961 Act, AY 2019-20)

The charge and its exceptions

Section 22 charges, under the head Income from house property, the annual value of buildings and land attached to them of which the assessee is the owner. The annual value escapes the charge where the property falls outside section 22 itself, or where another provision exempts the income.

Four instances

1. Property used for the owner's own business or profession (section 22). The portion an owner occupies for his own business or profession is left out of section 22, so long as the profits of that business or profession are chargeable to income-tax. No notional rent is charged on, say, a shop or office in which the owner runs his own trade; its use is reflected in the business profits instead.
2. Farm house (section 2(1A)(c) with section 10(1)). Income from a building is agricultural income where a cultivator of agricultural land, or a person receiving rent-in-kind from it, occupies the building, or where the person receiving rent or revenue from that land both owns and occupies it, provided the building stands on or in the immediate vicinity of the land and is needed, by reason of the connection with the land, as a dwelling house, store-house or other outbuilding (first proviso to section 2(1A)(c), clause (i)), and the land is assessed to land revenue in India or to a local rate assessed and collected by Government officers, or else lies outside the urban areas that clause (ii) of that proviso describes: a municipality or cantonment board with a population of at least 10,000, or within 2 km (population above 10,000 up to 1 lakh), 6 km (above 1 lakh up to 10 lakh) or 8 km (above 10 lakh) of its limits, measured aerially. Agricultural income is not part of total income, so the annual value of such a farm house is not taxed. If the building is put to a non-agricultural use, such as letting for residence or business, that income is not agricultural income (Explanation 2 to section 2(1A)).
3. Palace of a former Ruler (section 10(19A)). The annual value of one palace occupied by a former Ruler, whose annual value was exempt before the Constitution (Twenty-sixth Amendment) Act, 1971 under the Merged States (1949), Part B States (1950) or Jammu and Kashmir (1958) Taxation Concessions Order, is not included in total income.
4. House property of a political party (section 13A). Income of a political party under the head Income from house property is not included in its total income, subject to the conditions of that section: the party is registered under section 29A of the Representation of the People Act, 1951; it keeps such books of account and documents as let the Assessing Officer properly work out its income, and a record of each voluntary contribution above ₹20,000 (other than by electoral bond) with the donor's name and address; its accounts are audited by an accountant as defined in the Explanation below section 288(2); it receives no donation above ₹2,000 except by account payee cheque or draft, electronic clearing through a bank account or electoral bond (the bond the Explanation to that proviso defines by reference to the Reserve Bank of India Act, 1934); its treasurer or another authorised person submits its report under section 29C(3) of that Act for the year; and it furnishes its return under section 139(4B) by the due date (section 13A, provisos and Explanation). Under section 139(4B) the party's chief executive officer furnishes the return in the prescribed form and verification where its total income, computed without the section 13A exemption, exceeds the amount not chargeable to tax.

Other examples of the same kind: house property income of a research association approved for section 35(1)(ii) or (iii), which applies or accumulates its income wholly for its objects (with section 11(2)-(3) as modified) and keeps its funds in the permitted forms (section 10(21) and its proviso), and of a registered trade union (section 10(24)).

A related case: the self-occupied house

For assessment year 2019-20, the annual value of one house occupied by the owner as his residence, or that he cannot occupy because his work keeps him at another place where he lives in a building he does not own, is taken to be nil (section 23(2)), provided it is not let and no other benefit is derived from it (section 23(3)). Where the owner has more than one such house, he chooses the one to which section 23(2) applies, and the annual value of the others is worked out under section 23(1) as if they were let (section 23(4)). The held text speaks of two houses, but its footnotes show that the change from one house to two took effect only from 1 April 2020.