Question 3 OR (b)
Taxable income with one self-occupied and two let-out houses, under the old regime
12 marks
- Time to write
- About 24 minutes
- Notes
- Crux notes
Question
Question 3 OR (b) · 12 marksMr. X (50 years) owned three independent houses during the tax year 2026-27, and gave these details of his house properties.
| Particulars | House-1 | House-2 | House-3 |
|---|---|---|---|
| Use | Self-occupied | Let out | Let out |
| Constructed on | 01/04/2008 | 01/06/2018 | 01/09/2025 |
| Municipal Value | 800000 | 850000 | 930000 |
| Rental value (fair) | 850000 | 920000 | 960000 |
| Standard Rent | Nil | 900000 | 940000 |
| Rent (monthly) | - | 70000 | 80000 |
| Loss due to vacancy | - | Nil | 1 month |
| Unrealized Rent (2026-27) | - | 20000 | - |
| Municipal taxes Mr. X paid | 5% | 5% | 5% |
| Municipal taxes the tenant paid | - | 20000 | 10000 |
| Loan for constructing the property | - | 1500000 | 2000000 |
| Interest rate on loan (p.a.) | - | 10% | 10% |
| Loan: date of repayment | - | 31/12/2026 | 31/3/2033 |
Calculate the taxable income of Mr. X, given that his income from salary is Rs. 650000 (computed), his interest on saving bank account is Rs. 34000, and he invested Rs. 40000 in Sukanya Samridhhi Account in the tax year. He opted for the old tax regime. (12)
Paper note: Set under the Income-tax Act, 1961 for assessment year 2024-25 (previous year 2023-24); answered under the Income-tax Act, 2025 for tax year 2026-27, so the year term moves forward by 3 years and every date in the question moves forward by the same 3 years, so that intervals, holding periods and ages are as printed. Every figure and name is as printed. The 5% municipal taxes paid by Mr. X are read as 5% of the municipal value; the loans are read as outstanding for the whole year until the repayment date, with no interest for the years before completion.
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 2 min
- 1 Expected rent, unrealised rent and vacancy for each house 4 marks 7 min
- 2 Municipal taxes, 30% and interest 4 marks 7 min
- 3 Self-occupied house and total house property income 1 mark 1 min
- 4 Gross total income, deductions and taxable income 3 marks 5 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 24 minutes for 12 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.
- Municipal taxes paid by Mr. X are 5% of the municipal value of each house and were paid during the year.
- Each loan was outstanding for the whole year up to its repayment date, and no interest relates to the period before construction was completed.
- The unrealised rent of House-2 meets the conditions of the rules for exclusion (section 21(4)).
- House-1 has no loan, so its annual value is nil and no deduction arises.
- The House-2 construction loan is taken to be from a bank (the question does not name the lender), so the principal repaid counts towards the section 123 deduction (Schedule XV, paragraph 3(a)(iii)); the figures if it does not are given after the computation.
| Particulars | House-2 (let out) Rs. | House-3 (let out) Rs. |
|---|---|---|
| Expected rent: higher of municipal value and fair rent, limited to standard rent | 9,00,000 | 9,40,000 |
| Rent for the period let (₹70,000 × 12; ₹80,000 × 11) | 8,40,000 | 8,80,000 |
| Less: Unrealised rent | 20,000 | — |
| Actual rent received or receivable | 8,20,000 | 8,80,000 |
| Gross annual value (see notes) | 9,00,000 | 8,80,000 |
| Less: Municipal taxes paid by Mr. X (5% of municipal value) | 42,500 | 46,500 |
| Net annual value | 8,57,500 | 8,33,500 |
| Less: 30% of net annual value (section 22(1)(a)) | 2,57,250 | 2,50,050 |
| Less: Interest on the loan (section 22(1)(b)) | 1,12,500 | 2,00,000 |
| Income from house property | 4,87,750 | 3,83,450 |
House-1 (self-occupied, no loan): annual value nil (section 21(6)); income nil.
Total income from house property = ₹4,87,750 + ₹3,83,450 = ₹8,71,200.
- House-2: expected rent is ₹9,20,000 (fair rent) limited to the standard rent of ₹9,00,000. The actual rent after unrealised rent (₹8,20,000) is lower, and there was no vacancy, so the expected rent is the gross annual value.
- House-3: expected rent is ₹9,60,000 limited to the standard rent of ₹9,40,000. For the full year the rent would have been ₹9,60,000, above the expected rent; it is lower (₹8,80,000) only because of one month's vacancy, so the actual rent is the gross annual value (section 21(2)).
- Municipal taxes paid by the tenants (₹20,000 and ₹10,000) are not deductible; only taxes paid by the owner are (section 21(3)).
- Interest: House-2's loan of ₹15,00,000 at 10% was repaid on 31/12/2026, so interest is for nine months: ₹15,00,000 × 10% × 9/12 = ₹1,12,500. House-3's loan of ₹20,00,000 at 10% runs all year: ₹2,00,000. For let-out houses there is no ceiling on interest.
Computation of taxable income for tax year 2026-27
| Particulars | Rs. |
|---|---|
| Income from salaries (computed) | 6,50,000 |
| Income from house property | 8,71,200 |
| Income from other sources: interest on savings bank account | 34,000 |
| Gross total income | 15,55,200 |
| Less: Section 123 (Schedule XV): Sukanya Samriddhi Account deposit ₹40,000 + repayment of House-2 loan principal ₹15,00,000 = ₹15,40,000, limited to | 1,50,000 |
| Less: Section 153(2)(a): interest on savings account, limited to | 10,000 |
| Taxable income | 13,95,200 |
If not: if the House-2 loan was not taken from one of the lenders listed in Schedule XV, paragraph 3(a)(iii) (the Central or a State Government, a bank including a co-operative bank, LIC, the National Housing Bank, a qualifying housing-finance company or co-operative society, or certain employers), the principal repaid is not deductible: the section 123 deduction is the Sukanya Samriddhi deposit alone, ₹40,000, and taxable income is ₹15,05,200.
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Expected rent, unrealised rent and vacancy for each house | 4 |
| 2 | Municipal taxes, 30% and interest | 4 |
| 3 | Self-occupied house and total house property income | 1 |
| 4 | Gross total income, deductions and taxable income | 3 |
| Total | 12 |
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