Can the net annual value, or the income from house property, be negative? (as set, 1961 Act, AY 2018-19)

Is the statement correct?

Not entirely. The net annual value is usually positive, and for a self-occupied house it is nil, but it can turn negative for a let-out house in an unusual case. The income under the head Income from house property can certainly be negative.

How the net annual value is found

For a let-out house the gross annual value is found under section 23(1): the sum for which the house might reasonably be let from year to year, or the actual rent where that is higher, or the lower actual rent where the shortfall is due to the house lying vacant. From it are deducted the taxes levied by a local authority that the owner actually paid in the year (proviso to section 23(1)); the result is the net annual value.

When the net annual value can be negative

• Self-occupied house: its annual value is taken as nil (section 23(2)), and the municipal taxes are not deducted from a nil value, so the net annual value is nil, never negative.
• Let-out house: the proviso to section 23(1) lets the owner deduct taxes in the year he actually pays them, even if they relate to earlier years. Where the gross annual value is small (for instance, the house lay vacant for most of the year and the actual rent was low) and the owner pays arrears of municipal taxes in the same year, the taxes can exceed the gross annual value and the net annual value is negative.

Can the income under the head be negative?

Yes. The interest on money borrowed to buy, build, repair or renew the house is deducted under section 24(b), and the income becomes a loss whenever that interest is more than the net annual value less the 30% deduction of section 24(a). For a self-occupied house the net annual value is nil, so the interest (up to ₹2,00,000 where the second proviso to section 24(b) applies, or ₹30,000 otherwise) is always a loss under the head.

Treatment of the loss

A loss under this head is first set off against income from another house property (section 70(1)), then against income under other heads, but from assessment year 2018-19 only up to ₹2,00,000 a year (section 71(3A), inserted with effect from 1 April 2018). The rest is carried forward for up to eight assessment years and set off only against income from house property (section 71B).

Example

Ms. Kavita owns a house let at ₹8,000 a month, but it was vacant for ten months of 2017-18, so the rent actually received was ₹16,000, below the expected rent (section 23(1)(c)). She paid municipal taxes of ₹24,000, including arrears of two earlier years. Her net annual value is ₹16,000 − ₹24,000 = −₹8,000, and 30% of a negative value gives no deduction. With interest of ₹60,000 on a housing loan, her loss under the head is ₹68,000, which she can set off against her salary.