Income from house property & tax deduction

Project Manager

Hi All,

Need your expert advice towards tax planning.

I have self owned property with a home loan with SBI. I stay with my parents due to family reasons and so the self owned property is vacant. The interest for the home loan is ~2.2Lakh/year. I understand that I need to pay notional rent on the vacant property while I can claim HRA for staying wth parents.

My questions are:
1. How do I calculate the fair value of vacant property? Similar rented property in the same building fetches 15000Rs/month but due to economic conditions now, such tenants are not available.
2. If I plan to rent the property to my brother can I can rent it on lesser than market value since the arrangement is within family. Will get the rent agreement notorised for legal/income tax purposes.
3. I had also borrowed money from parents to buy the self-owned property. Can I claim deduction for interest  on this relative borrowed under section 24(b) in addition to 2.2Lakh/year from SBI? If yes, can I use it for income from property calculation?
4. Can the deduction for interest on this relative borrowed money be claimed even if it is due only (i.e. actually not repaid to lender)
5. How long can interest be kept the due only? Is there any legal time period for this OR depends on the agreement between lender and borrower?
6. Is the due only interest taxable to the lender OR it is taxed when it is repaid in actual?




1).Fair rent is just a bookish concept. Just rent recd / recievable is to be taken into consideration for computing incomne under head house property. 2). Yes, you can claim deduction u/s 24(b) of intrest on due basis.

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One more thing , deduction u/s 24 (b) is allowed max of 150000 rs.

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Partner at Elite Educare



Annual value is determined on the following basis

a)    Compare fair rent with municipal value, higher of the two is considered as A.

b)    Compare A with Standard rent, lowerof the two is considered as B. (gross annual value for deemed let out property, your quest. 1)

c)    Compare B with Actual rent (AR) received-

1.    If AR is greater than B then AR is annual value.

2.    If B is greater then AR then-

i.    If due to vacancy, AR is the annual value.

ii.    If due to any other factors, B is the Annual value.


1.    In your quest. value calculated in b) will be considered as Annual value as actual rent received is NIL.


2.    If you plan to let out property to your brother and if the value is lesser then income from house property will be calculated from the above method and if I’m not mistaken then value B will be considered as Annual value for the income tax purpose.


3.    A) If the property is let out to your brother then on let out property there are no restrictions on the maximum amount that can be claimed as interest.

B) If the property is vacant then you can claim  upto Rs. 1.5 Lac as interes.


4.  You can claim interest u/s 24 (b) on due basis. Therefore you can claim (Interest on loan from SBI + Interest on loan from parents) upto Rs. 1.5 lac if property is vacant. (If on the same house) and if not vacant then as per 3. A)

             5 & 6. Interest loan to your parents is taxable on due basis.


Hope your query is solved,

Please correct me members if I'm wrong.




@ ketan , have you ever compute the income u/h house porperty practically? From where you will get to know the fair rent? These are jus bookish concepts.
Partner at Elite Educare

Yes, Ma'm,

The concept of FR do not work in practical. 

I didnt say i disagree wih your answer.

I wrote my opinion.

Project Manager

Thanks Ketan, Celiena for your response.

Ketan, appreciate your detailed analysis.

As for let out of property, I understand that the interest deduction does not have any limit. I think if the property is vacant and so notional rent is applicable, then the income from property calculaton takes in account the entire interest paid (not limited to 1.5Lakh). Section 24(b)

As for the understanding of fair rent v/s market rent v/s standard rent.. I am still unsure if I can charge less than market rent to my brother since relative. The main constraint for this arrangement would be that income from property would indicate more loss if rent is less and so should not be looked upon as illegal way to evade tax. Is there any similar case/judgement from court towards this scenario?

Also, are there any guidelines defined for the interest rate for loan from relatives? Similarly, are there any guidelines defined for such loan repayment? My assumption is that both these are as per an agreement between lender and borrower since it is a loan from relative.



Partner at Elite Educare

Abhibjit ji,

can you tell the house in which you are staying with parents is on who's name??


According to me you can do- If it's on your parents name then you can claim other house as self occupied

If it's on your name then question of notional rent arises.


members please correct me if I'm wrong.

Project Manager

The vacant house is on my name so can be treated as self occupied (if I stay there) else pay notional rent (if vacant). My parents house is on my father name. Since I need to pay notional rent anyways on the vacant house, it is better that I rent it and brother uses it for his stay. Hence the need to understand if lesser than market rent is ok from brother since relative?


Partner at Elite Educare


Abhijit ji,

In this case, if you are charging lesser rent to your brother, Annual rent will be higher of municipal value or actual rent. So, even if you charge lesser rent to your brother municipal value will be chargeable.



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