Taxation - DT Ch 04: House Property - Test 2: answer key

Question 1 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. Smt. Anuradha Sen owns a residential house in Kolkata. For FY 2026-27, the gross annual value of the house is ₹12,00,000. The municipal tax bill for FY 2026-27 is ₹80,000. She paid ₹50,000 during FY 2026-27 and ₹30,000 on 10 April 2027. Arrears of municipal tax for FY 2025-26 amounting to ₹20,000 were paid by her on 15 May 2026. The tenant paid ₹5,000 as water charges directly to the municipal body; this amount was not reimbursed by Smt. Sen. She took an original housing loan in 2019 for construction of the house. Construction was completed on 1 April 2025. Interest for the period before completion was ₹4,00,000. Interest on the original loan for April to September 2026 was ₹1,20,000. In October 2026, she took a fresh loan from another bank and used the entire amount to repay the original housing loan. Interest on the fresh loan for October 2026 to March 2027 was ₹60,000. Both loans were used only for the house. She follows the default tax regime under section 115BAC. She maintains records of all payments and loan statements. The house was let throughout FY 2026-27. The accountant wants to compute net annual value, standard deduction and interest deduction under section 24(b).

What amount of municipal taxes is deductible while computing net annual value of Smt. Anuradha Sen’s house for FY 2026-27?

1. ₹50,000
2. ₹70,000 (correct answer)
3. ₹80,000
4. ₹1,00,000

Answer: B — ₹70,000

Explanation. Municipal taxes are allowed on actual payment basis only when paid by the owner during the previous year. Smt. Sen paid ₹50,000 for FY 2026-27 and ₹20,000 as arrears for FY 2025-26 during FY 2026-27. Total allowed = ₹50,000 + ₹20,000 = ₹70,000. The ₹30,000 paid in April 2027 is outside FY 2026-27. The ₹5,000 water charges paid by the tenant are not municipal taxes paid by the owner and are not deductible.

Where it goes wrong. Including ₹30,000 paid after year-end or ₹5,000 water charges paid by the tenant.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 2 · 2 marks · Taxation - DT Ch 04: House Property · medium

What is the net annual value of Smt. Anuradha Sen’s house for FY 2026-27?

1. ₹11,30,000 (correct answer)
2. ₹11,50,000
3. ₹12,00,000
4. ₹11,20,000

Answer: A — ₹11,30,000

Explanation. Net annual value is gross annual value minus municipal taxes paid by the owner during the previous year. Gross annual value is ₹12,00,000. Municipal taxes allowed are ₹70,000, being ₹50,000 paid for FY 2026-27 plus ₹20,000 arrears paid in FY 2026-27. Net annual value = ₹12,00,000 − ₹70,000 = ₹11,30,000. The ₹30,000 paid after year-end and tenant-paid water charges do not reduce net annual value.

Where it goes wrong. Deducting ₹80,000 or ₹1,00,000 and arriving at a lower net annual value.

Authority. Section 23(1) of the Income-tax Act, 1961; Section 24(a) of the Income-tax Act, 1961

Question 3 · 2 marks · Taxation - DT Ch 04: House Property · hard

What is the standard deduction under section 24(a) for Smt. Anuradha Sen’s house for FY 2026-27?

1. ₹3,60,000
2. ₹3,30,000
3. ₹3,39,000 (correct answer)
4. ₹3,00,000

Answer: C — ₹3,39,000

Explanation. Standard deduction is 30% of net annual value. Net annual value is ₹12,00,000 − ₹70,000 = ₹11,30,000. Deduction = 30% × ₹11,30,000 = ₹3,39,000. The deduction is not computed on gross annual value and no separate claim is allowed for actual repairs. This statutory deduction is irrespective of the amount actually spent on repairs.

Where it goes wrong. Computing 30% of gross annual value ₹12,00,000 and selecting ₹3,60,000.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 4 · 2 marks · Taxation - DT Ch 04: House Property · hard

What is the interest deductible under section 24(b) for Smt. Anuradha Sen’s let-out house for FY 2026-27?

1. ₹1,80,000
2. ₹2,00,000
3. ₹2,40,000
4. ₹2,60,000 (correct answer)

Answer: D — ₹2,60,000

Explanation. For a let-out house, interest on borrowed capital is allowed without the self-occupied cap. Current interest on original loan is ₹1,20,000 and on fresh loan is ₹60,000. The fresh loan was used to repay the original construction loan, so its interest qualifies. Pre-construction interest of ₹4,00,000 is allowed in five equal installments from the year of completion; installment = ₹80,000. Total deduction = ₹1,20,000 + ₹60,000 + ₹80,000 = ₹2,60,000.

Where it goes wrong. Omitting the ₹80,000 pre-construction installment or disallowing interest on the fresh loan.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 5 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. Mr. Raghav owns a residential house in Pune. The house was self-occupied throughout FY 2026-27. Municipal taxes for FY 2026-27 were ₹45,000, paid by Mr. Raghav on 5 March 2027. He also paid ₹15,000 on 5 April 2027 towards municipal taxes for FY 2026-27. He took a housing loan in 2020 for construction. Construction was completed on 31 March 2026. Interest for the period before completion was ₹3,00,000. Interest on the original loan for April to October 2026 was ₹1,40,000. In November 2026, he took a fresh loan to repay the original housing loan. Interest on the fresh loan for November 2026 to March 2027 was ₹30,000. Both loans were used only for the house. He follows the default tax regime under section 115BAC. The house was not let at any time during FY 2026-27. Mr. Raghav wants to know the municipal tax deduction, net annual value, interest deduction under section 24(b), and the position if the house had been let out with gross annual value of ₹8,00,000. The loan documents show that the fresh loan was used solely to repay the original construction loan.

What amount of municipal taxes is deductible while computing income from Mr. Raghav’s self-occupied house for FY 2026-27?

1. Nil (correct answer)
2. ₹45,000
3. ₹30,000
4. ₹60,000

Answer: A — Nil

Explanation. For a self-occupied house, annual value is nil under section 23(2). Municipal taxes are deducted from gross annual value to arrive at net annual value. When annual value itself is nil, municipal taxes paid do not create a deduction. The ₹45,000 paid in March 2027 and ₹15,000 paid in April 2027 therefore do not reduce income under the head Income from house property.

Where it goes wrong. Allowing ₹45,000 municipal taxes even though annual value of the self-occupied house is nil.

Authority. Section 23(2) of the Income-tax Act, 1961; Section 24(a) of the Income-tax Act, 1961

Question 6 · 2 marks · Taxation - DT Ch 04: House Property · medium

What is the net annual value of Mr. Raghav’s self-occupied house for FY 2026-27?

1. ₹45,000
2. Nil (correct answer)
3. ₹30,000
4. ₹15,000

Answer: B — Nil

Explanation. Where a house is used for own residence and the conditions for self-occupied treatment are met, annual value is taken as nil. Net annual value cannot be negative and municipal taxes do not change the nil annual value. Therefore net annual value is nil. Interest deduction under section 24(b) is considered separately and is subject to the applicable cap.

Where it goes wrong. Showing municipal taxes as a negative net annual value or allowing them as a separate loss.

Authority. Section 23(2) of the Income-tax Act, 1961

Question 7 · 2 marks · Taxation - DT Ch 04: House Property · hard

What is the interest deductible under section 24(b) for Mr. Raghav’s self-occupied house for FY 2026-27 under the default tax regime?

1. ₹1,70,000
2. ₹2,30,000
3. ₹2,00,000 (correct answer)
4. ₹60,000

Answer: C — ₹2,00,000

Explanation. Interest before cap is current original loan interest ₹1,40,000 plus fresh loan interest ₹30,000 plus pre-construction installment ₹60,000, totalling ₹2,30,000. The fresh loan was used to repay the original construction loan, so its interest qualifies. For a self-occupied house under the default tax regime, interest deduction is restricted to ₹2,00,000. Hence allowed deduction is ₹2,00,000.

Where it goes wrong. Allowing the full ₹2,30,000 without applying the self-occupied interest cap.

Authority. Section 24(b) of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

Question 8 · 2 marks · Taxation - DT Ch 04: House Property · hard

If Mr. Raghav’s house had been let out with gross annual value of ₹8,00,000 and municipal taxes paid of ₹45,000, what interest would be deductible under section 24(b) for FY 2026-27?

1. ₹2,00,000
2. ₹1,70,000
3. ₹2,40,000
4. ₹2,30,000 (correct answer)

Answer: D — ₹2,30,000

Explanation. For a let-out house, the ₹2,00,000 self-occupied cap does not apply. Interest comprises original loan interest ₹1,40,000, fresh loan interest ₹30,000 and pre-construction installment ₹60,000. Total = ₹2,30,000. The fresh loan repaid the original construction loan and therefore qualifies. Municipal taxes affect net annual value but do not restrict interest deduction. Hence ₹2,30,000 is allowed.

Where it goes wrong. Applying the ₹2,00,000 cap even after the house is let out.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 9 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Dev owns a let-out property with gross annual value of ₹9,00,000. Municipal taxes of ₹60,000 were paid by the tenant under the lease deed. Mr. Dev paid ₹10,000 municipal tax directly. What is the net annual value?

1. ₹8,40,000
2. ₹8,90,000 (correct answer)
3. ₹9,00,000
4. ₹8,30,000

Answer: B — ₹8,90,000

Explanation. Only municipal taxes paid by the owner are deductible. The tenant-paid ₹60,000 cannot be claimed by Mr. Dev. His own payment of ₹10,000 is allowed. Net annual value = gross annual value ₹9,00,000 − ₹10,000 = ₹8,90,000. The tenant’s payment does not reduce the owner’s taxable net annual value.

Where it goes wrong. Deducting the tenant-paid ₹60,000 and arriving at ₹8,40,000.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 10 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A let-out house has gross annual value of ₹7,50,000. Municipal taxes of ₹40,000 were paid on 15 April 2027. Municipal taxes of ₹25,000 were paid during FY 2026-27. What is the net annual value for FY 2026-27?

1. ₹7,25,000 (correct answer)
2. ₹7,50,000
3. ₹7,10,000
4. ₹7,90,000

Answer: A — ₹7,25,000

Explanation. Municipal taxes are allowed on actual payment basis in the previous year in which paid by the owner. Only ₹25,000 paid during FY 2026-27 is deductible. The ₹40,000 paid in April 2027 falls in FY 2027-28. Net annual value = ₹7,50,000 − ₹25,000 = ₹7,25,000.

Where it goes wrong. Deducting ₹40,000 paid after year-end and selecting ₹7,10,000.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 11 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A let-out property has gross annual value of ₹10,00,000. Municipal taxes paid by the owner are ₹1,00,000. What is the standard deduction under section 24(a)?

1. ₹3,00,000
2. ₹2,50,000
3. ₹2,70,000 (correct answer)
4. ₹2,00,000

Answer: C — ₹2,70,000

Explanation. Standard deduction is 30% of net annual value, not gross annual value. Net annual value = ₹10,00,000 − ₹1,00,000 = ₹9,00,000. Deduction = 30% × ₹9,00,000 = ₹2,70,000. Computing 30% of gross annual value would give ₹3,00,000, which is incorrect because municipal taxes are deducted first.

Where it goes wrong. Computing 30% of gross annual value and selecting ₹3,00,000.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 12 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Suresh took a housing loan on 1 April 2022 for construction of a let-out house. Construction was completed on 1 October 2026. Interest for the pre-construction period was ₹5,00,000. What amount of pre-construction interest is deductible in FY 2026-27?

1. ₹5,00,000
2. ₹4,00,000
3. ₹80,000
4. ₹1,00,000 (correct answer)

Answer: D — ₹1,00,000

Explanation. Pre-construction interest is allowed in five equal annual installments beginning with the year of completion. Completion falls in FY 2026-27. Installment = ₹5,00,000 ÷ 5 = ₹1,00,000. The whole pre-construction interest cannot be claimed in one year. Current year interest on the loan, if any, is allowed separately in addition to this installment.

Where it goes wrong. Claiming the full ₹5,00,000 pre-construction interest in the year of completion.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 13 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A house was completed on 31 March 2026. Pre-construction interest was ₹6,00,000. What amount of pre-construction interest is deductible for FY 2026-27?

1. ₹1,20,000 (correct answer)
2. ₹1,00,000
3. ₹6,00,000
4. ₹80,000

Answer: A — ₹1,20,000

Explanation. Completion was on 31 March 2026, so the first year of the five-installment spread is FY 2025-26. FY 2026-27 is the second year. Annual installment = ₹6,00,000 ÷ 5 = ₹1,20,000. The same amount is allowed in each of the five years, including the second year. The entire amount is not allowed in FY 2026-27.

Where it goes wrong. Taking FY 2026-27 as the first installment year and allowing only ₹1,00,000 or less.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 14 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Nilesh took a loan for construction of a let-out house. Later, he took a fresh loan solely to repay that construction loan. Which statement about interest on the fresh loan under section 24(b) is correct?

1. Not allowed because the fresh loan is not directly for construction
2. Allowed because the fresh loan repays an original loan taken for construction (correct answer)
3. Allowed only up to ₹2,00,000 in every case
4. Allowed only if municipal taxes are paid by the owner

Answer: B — Allowed because the fresh loan repays an original loan taken for construction

Explanation. Interest on a fresh loan is allowed where the fresh loan is used to repay an original loan that was taken for acquisition, construction, repair, renewal or reconstruction of the house. The fresh borrowing substitutes the original qualifying borrowing. For a let-out house, the ₹2,00,000 self-occupied cap does not apply. Municipal tax payment is not a condition for interest deduction.

Where it goes wrong. Disallowing fresh loan interest merely because the fresh loan itself was not taken directly for construction.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 15 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Ankit took an education loan for his daughter’s studies. Later, he took a fresh loan to repay that education loan and claimed interest under section 24(b) against his let-out house. Is the claim allowable?

1. Allowed because every fresh loan repayment attracts section 24(b)
2. Allowed only to the extent of ₹1,50,000
3. Not allowed because the original loan was not for a qualifying house property purpose (correct answer)
4. Allowed if the interest does not exceed net annual value

Answer: C — Not allowed because the original loan was not for a qualifying house property purpose

Explanation. Section 24(b) applies to capital borrowed for acquisition, construction, repair, renewal or reconstruction of the house. A fresh loan qualifies only if it repays an original loan taken for one of those purposes. An education loan is not a qualifying borrowing. Repaying it through a fresh loan does not convert the interest into house property interest.

Where it goes wrong. Assuming any fresh loan used to repay an earlier loan automatically qualifies under section 24(b).

Authority. Section 24(b) of the Income-tax Act, 1961

Question 16 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Ms. Meera’s self-occupied house has current year interest of ₹2,80,000 and a pre-construction interest installment of ₹50,000. She follows the default tax regime under section 115BAC. What interest is deductible under section 24(b)?

1. ₹3,30,000
2. ₹2,80,000
3. ₹50,000
4. ₹2,00,000 (correct answer)

Answer: D — ₹2,00,000

Explanation. Interest before the cap is ₹2,80,000 current interest plus ₹50,000 pre-construction installment, totalling ₹3,30,000. For a self-occupied house under the default tax regime, interest deduction under section 24(b) is restricted to ₹2,00,000. The cap applies to the aggregate qualifying interest, including the pre-construction installment.

Where it goes wrong. Allowing ₹2,80,000 or ₹3,30,000 by overlooking the self-occupied cap.

Authority. Section 24(b) of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961

Question 17 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A let-out house has current year interest on borrowed capital of ₹4,50,000 and a pre-construction interest installment of ₹1,00,000. What is the deduction under section 24(b) for FY 2026-27?

1. ₹5,50,000 (correct answer)
2. ₹4,50,000
3. ₹1,00,000
4. ₹3,50,000

Answer: A — ₹5,50,000

Explanation. For a let-out house, there is no ₹2,00,000 cap on interest deduction. Current year interest ₹4,50,000 is allowed. The pre-construction interest installment of ₹1,00,000 is also allowed from the year of completion. Total deduction = ₹4,50,000 + ₹1,00,000 = ₹5,50,000. Interest can exceed net annual value and create a loss under the head.

Where it goes wrong. Applying the self-occupied ₹2,00,000 cap to a let-out property.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 18 · 2 marks · Taxation - DT Ch 04: House Property · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A let-out property has gross annual value of ₹8,00,000. Municipal taxes for FY 2026-27 of ₹30,000 were paid during the year. Arrears of ₹20,000 were also paid during the year. A further ₹10,000 was paid in April 2027. What is the net annual value for FY 2026-27?

1. ₹7,70,000
2. ₹7,50,000 (correct answer)
3. ₹7,20,000
4. ₹8,00,000

Answer: B — ₹7,50,000

Explanation. Municipal taxes are allowed on payment basis when paid by the owner during the previous year. Amounts paid in FY 2026-27 are ₹30,000 current tax and ₹20,000 arrears, totalling ₹50,000. The ₹10,000 paid in April 2027 is outside FY 2026-27. Net annual value = ₹8,00,000 − ₹50,000 = ₹7,50,000.

Where it goes wrong. Including the April 2027 payment and arriving at ₹7,40,000, or ignoring arrears.

Authority. Section 24(a) of the Income-tax Act, 1961

Question 19 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Bimal took a loan for renewal of a let-out house and paid interest of ₹90,000 during FY 2026-27. Is the interest deductible under section 24(b)?

1. Not allowed because only acquisition or construction qualifies
2. Allowed only if the loan is from a bank
3. Allowed because renewal is a qualifying purpose under section 24(b) (correct answer)
4. Allowed only to the extent of net annual value

Answer: C — Allowed because renewal is a qualifying purpose under section 24(b)

Explanation. Section 24(b) covers capital borrowed for acquisition, construction, repair, renewal or reconstruction of the house. Renewal is a qualifying purpose. Therefore interest of ₹90,000 is deductible for a let-out house, subject to the usual conditions that the loan is used for the qualifying purpose. The lender being a bank is not a condition, and there is no net annual value ceiling for let-out property.

Where it goes wrong. Restricting section 24(b) only to acquisition or construction and disallowing renewal interest.

Authority. Section 24(b) of the Income-tax Act, 1961

Question 20 · 2 marks · Taxation - DT Ch 04: House Property · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A let-out house has gross annual value of ₹15,00,000. Municipal taxes paid by the owner are ₹1,00,000. Interest on borrowed capital allowed under section 24(b) is ₹3,00,000. What is the income under the head Income from house property?

1. ₹5,80,000
2. ₹7,80,000
3. ₹8,80,000
4. ₹6,80,000 (correct answer)

Answer: D — ₹6,80,000

Explanation. Net annual value = ₹15,00,000 − ₹1,00,000 = ₹14,00,000. Standard deduction under section 24(a) = 30% × ₹14,00,000 = ₹4,20,000. Interest under section 24(b) = ₹3,00,000. Income = ₹14,00,000 − ₹4,20,000 − ₹3,00,000 = ₹6,80,000. The standard deduction is computed on net annual value after municipal taxes.

Where it goes wrong. Computing 30% on gross annual value or forgetting to deduct interest after standard deduction.

Authority. Section 24(a) of the Income-tax Act, 1961; Section 24(b) of the Income-tax Act, 1961