Question 3
House let for part of the year and self-occupied for the rest, with unrealised rent (as set, 1961 Act, AY 2017-18)
11 marks
- Time to write
- About 22 minutes
From an older CBCS paper
Question
Question 3 · 11 marksMrs. Laxmi Devi owns a house property in Mumbai. Its municipal value is Rs. 10,00,000, its fair rent is Rs. 900,000 and its standard rent is Rs. 9,60,000. That property was let out at Rs. 100,000 per month upto December 2016. After that the tenant vacated it, and Mrs. Laxmi Devi used the house for her own occupation. The rent for November and December 2016 could not be realized, despite the owner's best efforts. All the conditions prescribed under Rule 4 are satisfied. She paid municipal taxes at 12% during the year, and she paid interest of Rs. 45,000 during the year on an amount borrowed for repairs of the house property. Calculate the income of Mrs. Laxmi Devi from house property for the assessment year 2017-18. 11
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2017-18 (previous year 2016-17), with the dates as printed. The rent and values are printed in mixed forms (Rs. 10,00,000; Rs. 900,000; Rs. 9,60,000; Rs. 100,000) and stand as printed. The tenant leaves after December 2016; the house is then self-occupied for the rest of the previous year.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- CalculateHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Treatment of a house let for part of the year (section 23(3)) 1½ marks 3 min
- 2 Expected rent from municipal value, fair rent and standard rent 2½ marks 4 min
- 3 Actual rent and unrealised rent 2 marks 4 min
- 4 Gross and net annual value municipal taxes 2 marks 4 min
- 5 Deductions under section 24 and the income 3 marks 5 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 22 minutes for 11 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
The house was let from April to December 2016 and occupied by Mrs. Laxmi Devi herself from January to March 2017. A house that is actually let for any part of the previous year cannot take the nil annual value of a self-occupied house (section 23(3)(a)), so its annual value is found under section 23(1) for the whole year, as a let-out house.
| Particulars | Rs. |
|---|---|
| (a) Municipal value | 10,00,000 |
| (b) Fair rent | 9,00,000 |
| (c) Higher of (a) and (b) | 10,00,000 |
| (d) Standard rent | 9,60,000 |
| (e) Expected rent: (c), but not above the standard rent (d) | 9,60,000 |
| (f) Rent for the let-out period, April to December 2016: ₹1,00,000 × 9 | 9,00,000 |
| (g) Less: unrealised rent for November and December 2016 | 2,00,000 |
| (h) Actual rent received or receivable, (f) − (g) | 7,00,000 |
| Gross annual value: the higher of (e) and (h) | 9,60,000 |
The expected rent is the sum for which the house might reasonably be let from year to year (section 23(1)(a)); a let house takes the actual rent instead only where that is higher (section 23(1)(b)). The unrealised rent is left out of the actual rent because it is rent payable but not paid and proved to be lost and irrecoverable, with the conditions prescribed under rule 4 taken as met: the tenancy is genuine, the defaulting tenant has left or steps have been taken to make him leave, he occupies no other property of the owner, and the owner has taken all reasonable steps to sue for the rent or satisfies the Assessing Officer that suing would be useless (Explanation to section 23(1); Income-tax Rules, 1962, rule 4, as substituted by the Income-tax (8th Amendment) Rules, 2001 (CBDT Notification No. 198/2001), in force from assessment year 2002-03). The shortfall here is not caused by a vacancy (the house was not vacant but self-occupied), so section 23(1)(c) does not apply.
Computation of income from house property for assessment year 2017-18
| Particulars | Rs. |
|---|---|
| Gross annual value | 9,60,000 |
| Less: municipal taxes paid by the owner during the year, 12% of ₹10,00,000 (proviso to section 23(1)) | 1,20,000 |
| Net annual value | 8,40,000 |
| Less: standard deduction, 30% of ₹8,40,000 (section 24(a)) | 2,52,000 |
| Less: interest on money borrowed for repairs (section 24(b)) | 45,000 |
| Income from house property | 5,43,000 |
- The municipal taxes are deducted because she paid them during the year; they are taken at 12% of the municipal value.
- The interest is deducted in full. The ₹30,000 ceiling of the first proviso to section 24(b) applies only to a house whose annual value is nil under section 23(2), which this house is not.
- If the unrealised rent of ₹2,00,000 is recovered later, it will be taxed as income from house property in the year of recovery under section 25A(1), whether or not she still owns the house then, less 30% (section 25A(2)).
Where the 11 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Treatment of a house let for part of the year (section 23(3)) | 1.5 |
| 2 | Expected rent from municipal value, fair rent and standard rent | 2.5 |
| 3 | Actual rent and unrealised rent | 2 |
| 4 | Gross and net annual value (municipal taxes) | 2 |
| 5 | Deductions under section 24 and the income | 3 |
| Total | 11 |
Report a problemopens an email to admin@getkunji.com with the question ID7854-Q3already filled in.