Before You Declare ‘Rent’ in ITR, Read This: The REAL Section Behind House Property Tax

If you have ever wondered how the government decides the tax on rental income, self-occupied homes, or vacant properties, the answer lies in a small cluster of sections within the Income Tax Act. The computation of income from house property is governed by Sections 22 to 27 of the Income Tax Act, 1961, and these sections form the backbone of how property taxation works in India.

Even though the concept sounds technical, the actual logic behind property income is surprisingly simple once you understand how these sections operate together. These provisions cover everything — from determining the Annual Value of a property to calculating deductions and understanding realistic tax treatment for vacant or rented-out homes.

Section 22 – The Starting Point of Property Income

Section 22 is the charging section for house property. It clearly states that tax is levied on the Annual Value of any property of which the taxpayer is the owner. This includes residential homes, commercial buildings, shops, and even properties that are not actually rented but have the potential to earn rent.

The section does not compute the income — it merely establishes that tax will be charged under this head whenever a property exists & earns (or is capable of earning) rental income. From here, the computation shifts to the next section.

Section 23 – Determining the Annual Value (AV)

Section 23 is one of the most important parts of property taxation. It lays down the method to calculate the Annual Value, which represents the notional rent the property could earn in a year. This value becomes the foundation for calculating tax under “Income from House Property.”

Section 23 clarifies how to compare municipal value, fair rent, standard rent, and actual rent received. It also supports taxpayer-friendly provisions like vacancy allowance, where no taxable value is imposed if the property was genuinely vacant for the year."

This section ensures fairness by balancing real-world conditions with taxation rules.

Section 24 – The Deductions That Make Taxpayers Smile

Once the Annual Value is determined, Section 24 steps in to reduce the tax burden through two major deductions:

1. Standard Deduction (30% of Annual Value)

This deduction applies to all let-out or deemed let-out properties. It is automatic & does not require proof.

2. Interest on Home Loan

Interest paid on housing loans can be claimed up to ₹2 lakh for self-occupied property and without limit for let-out property, subject to certain conditions.

Section 24 helps bring taxation closer to reality by recognizing expenses and loan obligations.

Also Read: Stamp Duty Exemption in Income Tax under Section 80C

Section 25 – Amounts Not Deductible

While Section 24 gives deductions, Section 25 talks about the expenses that cannot be claimed. This includes interest related to unpaid taxes, capital expenditure, a& nd expenses not directly related to earning rental income. The purpose is to prevent misuse of the deduction structure while keeping reasonable limits intact.

Section 26 – Co-ownership and Joint Property Situations

Section 26 is essential when more than one person owns a property. If co-owners share definite & ascertainable shares, income is divided proportionately between them. This ensures fair tax treatment and avoids disputes. Each co-owner can also claim their own Section 24 deductions.

Section 27 – Deemed Ownership Scenarios

Section 27 expands the meaning of "owner" by including individuals who may not legally own the property but still enjoy property rights. Examples include:
• properties transferred without adequate consideration
• holders of lease-rights
• properties held by members of cooperative societies

This prevents tax evasion through artificial ownership arrangements.

How Sections 22 to 27 Work Together

To a new taxpayer, these sections may appear separate, but they are deeply interconnected. Here’s how the flow works:

1. Section 22 determines whether the income will be taxed under house property.
2. Section 23 identifies the Annual Value.
3. Section 24 allows deductions from that Annual Value.
4. Section 25 prevents misuse of deductions.
5. Section 26 ensures fair distribution if there are co-owners.
6. Section 27 clarifies ownership for taxation.

Together, these sections create a complete, fair, & balanced taxation system for property income.

Also Read: An Exclusive Tax Benefit for NPS Subscribers

Connecting Property Income Computation With Broader Income Tax Concepts

Though Sections 22 to 27 are the core provisions for house property income, they operate within the larger framework of the Income Tax Act. For instance:

1. Scientific Research Deductions
   • The Income Tax Act allows for deductions while computing taxes for expenses relating to scientific research, which may help businesses reduce their overall taxable income — including tax payable after adding property income.
2. Sukanya Samriddhi Yojana Income Tax Section
   • Investments in SSY reduce total taxable income under Section 80C, indirectly lowering tax liability after including property income.
3. Person Definition in Income Tax Section
   • This clarifies who can be taxed — individuals, companies, HUFs, firms, LLPs, associations, etc. All of them must follow Sections 22 to 27 for property income.
4. Section 10(46A)
   • This provides exemption for notified authorities; if such bodies hold properties, they may be exempt from tax."
5. Section 86, Section 15H, and Section 69D
   • These sections affect overall income calculation or disclosure but still interact with property income under Sections 22–27.

A Practical Example to Simplify Everything

Let’s say Raj owns a house in Pune.

• Municipal value: ₹2,50,000
  • Fair rent: ₹2,80,000
  • Standard rent: ₹2,60,000
  • Actual rent received: ₹2,70,000

Step 1: Determine Annual Value (Section 23)
Expected rent = lower of fair rent & standard rent = ₹2,60,000
Actual rent ( ₹2,70,000 ) is higher → Annual Value becomes ₹2,70,000

Step 2: Apply deductions (Section 24)
Standard deduction = 30% of AV = ₹81,000
Home loan interest = ₹1,50,000
Taxable income = ₹2,70,000 – ₹81,000 – ₹1,50,000 = ₹39,000

This is how the sections work beautifully together.

Why Understanding These Sections Matters for Every Property Owner

Whether you own a single home or multiple properties, knowing Sections 22–27 helps you:
• calculate your income correctly
• avoid over-reporting or under-reporting
• claim deductions properly
• plan rental strategies
• stay compliant & stress-free

Property income is often misunderstood, but once you know how these sections work, it becomes surprisingly straightforward.

Also Read: The Forgotten Tax Benefit for First-Time Investors (Rajiv Gandhi Equity Savings Scheme)

Final Thoughts

The computation of income from house property is governed entirely by Sections 22 to 27 of the Income Tax Act, 1961, and these sections together form a well-structured, practical, and taxpayer-friendly system. They tell you what to tax, how to value your property, how to claim deductions, & how to avoid errors. When paired with other provisions like scientific research deductions, SSY benefits, & the definition of “person,” they help you plan your taxes with clarity and confidence.

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