Taxation - DT Ch 04: House Property - Test 3: answer key

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

Scenario. Mr. Rajat, a resident individual, owns four house properties in Bengaluru. House A is used for his own residence throughout FY 2026-27. House B is also used for his own residence throughout the year. House C is let out at ₹40,000 per month throughout the year. House D is co-owned by Mr. Rajat and his wife, each having a 50% share; it is let out at ₹30,000 per month throughout the year. Mr. Rajat follows the default tax regime under section 115BAC. For House A, he paid interest on a housing loan of ₹1,80,000 during the year; the loan was taken in 2018 for construction. For House B, he paid interest of ₹40,000 on a loan taken in 2020 for repairs. Arrears of rent relating to FY 2025-26 for House C amounting to ₹60,000 were received in January 2027. He had not claimed any deduction for these arrears earlier. For House D, municipal taxes of ₹20,000 were paid by the co-owners equally. Mr. Rajat wants to compute income under the head Income from house property. The co-owners have definite shares. All conditions for claiming interest under section 24(b) are met, but the tax regime choice affects the deduction for self-occupied properties. Mr. Rajat is confused about how many houses can be treated as self-occupied under the default regime and how interest on loans for such houses is treated.

What is the annual value of House A, used for Mr. Rajat’s own residence, for FY 2026-27 under the default tax regime?

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

Answer: A — Nil

Explanation. Under section 23(2), where a house is used for the owner’s own residence, annual value is nil. Under the default tax regime, up to two houses can be treated as self-occupied and their annual value is nil. House A is one such house. The interest paid on the housing loan is not deductible under the default regime. Therefore the annual value is nil.

Where it goes wrong. Adding back interest or treating the house as deemed let-out because a loan exists.

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

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

What is the interest deduction under section 24(b) for House B, used for Mr. Rajat’s own residence, for FY 2026-27 under the default tax regime?

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

Answer: C — Nil

Explanation. Under the default tax regime, deduction under section 24(b) for a self-occupied house is not available. House B is self-occupied. Even though interest of ₹40,000 was paid on a repair loan, the deduction is disallowed under section 115BAC. Hence interest deduction is nil.

Where it goes wrong. Allowing ₹30,000 or ₹40,000 by applying the normal repair-loan ceiling without considering the default regime disallowance.

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

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

How much of the arrears of rent of ₹60,000 received in January 2027 for House C is taxable for Mr. Rajat for FY 2026-27?

1. ₹42,000 (correct answer)
2. ₹60,000
3. ₹18,000
4. Nil

Answer: A — ₹42,000

Explanation. Arrears of rent received are taxable under section 25A in the year of receipt. The amount is taxed at 70% of the arrears, whether or not the assessee had claimed any deduction earlier. 70% of ₹60,000 = ₹42,000. The balance 30% is not taxable. This is a separate charge and does not affect the annual value of House C.

Where it goes wrong. Taxing the full ₹60,000 or allowing a 30% deduction only if earlier claimed.

Authority. Section 25A of the Income-tax Act, 1961

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

How is the income from House D, co-owned by Mr. Rajat and his wife, taxed for FY 2026-27?

1. Entire income is taxed in Mr. Rajat’s hands
2. Income is taxed equally in both hands regardless of shares
3. Mr. Rajat is taxed on 50% of the income from the property (correct answer)
4. Income is taxed in the hands of the HUF

Answer: C — Mr. Rajat is taxed on 50% of the income from the property

Explanation. Where a house property is owned by co-owners with definite shares, section 26 applies. Each co-owner is taxed on the income from the property in proportion to their respective shares. Mr. Rajat has a 50% share, so 50% of the income from House D is included in his total income. The share of his wife is taxed in her hands.

Where it goes wrong. Taxing the whole income in the hands of the person who manages the property or splitting equally without regard to shares.

Authority. Section 26 of the Income-tax Act, 1961

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

Scenario. Ms. Ananya, a resident individual, owns three house properties in Pune. House P and House Q are used for her own residence throughout FY 2026-27. House R is let out at ₹25,000 per month throughout the year. She also co-owns House S with her brother, with Ms. Ananya having a 40% share and her brother 60%; House S is let out at ₹50,000 per month. Ms. Ananya follows the default tax regime under section 115BAC. For House P, she paid interest of ₹2,20,000 on a housing loan taken in 2019 for construction. For House Q, she paid interest of ₹25,000 on a loan taken for repairs. House R had unrealized rent of ₹30,000 relating to FY 2025-26; she recovered ₹20,000 of that unrealized rent in December 2026. She had not claimed any deduction for the unrealized rent earlier. For House S, municipal taxes of ₹40,000 were paid by the co-owners in proportion to their shares. Ms. Ananya wants to know how many of her houses can be treated as self-occupied, how interest under section 24(b) will be dealt with under the default regime, how the recovery of unrealized rent is taxed, and how income from the co-owned property is computed. All loan and payment conditions are satisfied. She maintains proper records of all transactions.

How many of Ms. Ananya’s houses can be treated as self-occupied for FY 2026-27 under the default tax regime?

1. Two (correct answer)
2. One
3. Three
4. Nil

Answer: A — Two

Explanation. Under section 23(2), an individual can treat up to two houses as self-occupied if they are used for own residence and other conditions are met. Ms. Ananya uses House P and House Q for her own residence. Therefore both can be treated as self-occupied. House R is let out and House S is co-owned and let out, so they are not self-occupied.

Where it goes wrong. Treating only one house as self-occupied, or treating all houses as self-occupied.

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

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

What is the total interest deduction under section 24(b) for House P and House Q for Ms. Ananya for FY 2026-27 under the default tax regime?

1. ₹2,45,000
2. ₹2,00,000
3. ₹2,25,000
4. Nil (correct answer)

Answer: D — Nil

Explanation. Under the default tax regime, section 24(b) deduction is not available for self-occupied houses. Houses P and Q are self-occupied. Therefore no interest deduction is allowed for either house. The total interest of ₹2,20,000 plus ₹25,000 = ₹2,45,000 cannot be claimed. Hence deduction is nil.

Where it goes wrong. Applying the ₹2,00,000 ceiling to House P or allowing ₹25,000 for House Q by overlooking the default regime disallowance.

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

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

How much of the recovery of unrealized rent of ₹20,000 is taxable for Ms. Ananya for FY 2026-27?

1. ₹14,000 (correct answer)
2. ₹20,000
3. ₹6,000
4. Nil

Answer: A — ₹14,000

Explanation. Recovery of unrealized rent is taxable under section 25A in the year of receipt at 70% of the amount recovered. 70% of ₹20,000 = ₹14,000. The balance 30% is not taxable. The taxability does not depend on whether a deduction was claimed earlier for the unrealized rent.

Where it goes wrong. Taxing the full ₹20,000 or allowing 30% deduction only if earlier claimed.

Authority. Section 25A of the Income-tax Act, 1961

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

How is the income from House S, co-owned by Ms. Ananya (40%) and her brother (60%), taxed for FY 2026-27?

1. Ms. Ananya is taxed on 40% of the income (correct answer)
2. Ms. Ananya is taxed on 50% of the income
3. The entire income is taxed in the brother’s hands
4. The income is taxed as that of a partnership firm

Answer: A — Ms. Ananya is taxed on 40% of the income

Explanation. Under section 26, where a house property is owned by co-owners with definite shares, each co-owner is taxed on their respective share of the income. Ms. Ananya’s share is 40%, so 40% of the income from House S is included in her total income. Her brother is taxed on 60%.

Where it goes wrong. Splitting equally because there are two co-owners, or taxing the whole amount in the hands of the majority owner.

Authority. Section 26 of the Income-tax Act, 1961

Question 9 · 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. Vivek owns a self-occupied house. He paid interest of ₹35,000 on a loan taken in 2021 for repairs. He follows the default tax regime under section 115BAC. What is the interest deduction available under section 24(b)?

1. ₹35,000
2. ₹30,000
3. Nil (correct answer)
4. ₹2,00,000

Answer: C — Nil

Explanation. Under the default tax regime, deduction under section 24(b) for a self-occupied house is not allowed. The repair-loan ceiling of ₹30,000 applies under the normal provisions, but the default regime disallows the deduction. Therefore interest deduction is nil despite the loan being for repairs and the amount being within the ₹30,000 limit.

Where it goes wrong. Allowing ₹30,000 by applying the repair-loan ceiling while ignoring the default regime disallowance.

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

Question 10 · 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. Priya owns three houses. House 1 and House 2 are used for her own residence. House 3 is neither let out nor used for her residence. How is House 3 treated for income-tax purposes?

1. As self-occupied and annual value is nil
2. As exempt income
3. As a business asset
4. As deemed let-out under section 23(4) (correct answer)

Answer: D — As deemed let-out under section 23(4)

Explanation. An individual can treat only up to two houses as self-occupied. Where a third house is not let out and is not used for own residence, it is deemed let-out under section 23(4). Its annual value is determined as if it were let out. Therefore House 3 is treated as deemed let-out.

Where it goes wrong. Treating all houses used for residence or lying vacant as self-occupied and taking annual value as nil.

Authority. Section 23(4) 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.

Mr. Arvind received arrears of rent of ₹1,00,000 in FY 2026-27 relating to FY 2024-25. He had not claimed any deduction for these arrears in FY 2024-25. What amount is taxable under section 25A for FY 2026-27?

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

Answer: D — ₹70,000

Explanation. Section 25A taxes arrears of rent in the year of receipt at 70% of the amount, whether or not the assessee had claimed a deduction for the arrears in the earlier year. 70% of ₹1,00,000 = ₹70,000. The fact that no deduction was claimed earlier does not make the full amount taxable.

Where it goes wrong. Taxing the full ₹1,00,000 because no deduction was claimed earlier, or taxing ₹30,000.

Authority. Section 25A 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.

A house property is owned by Mr. Ajay and his wife, with Mr. Ajay holding a 70% share and his wife 30%. The house is let out for the entire year. How is the income from the house property taxed?

1. Entire income is taxed in Mr. Ajay’s hands
2. Income is split equally between both spouses
3. Mr. Ajay is taxed on 70% and his wife on 30% (correct answer)
4. Income is taxed in the hands of the HUF

Answer: C — Mr. Ajay is taxed on 70% and his wife on 30%

Explanation. Under section 26, co-owners with definite shares are taxed in proportion to their shares. Mr. Ajay holds 70% and his wife 30%. Therefore Mr. Ajay includes 70% of the income from the house property in his total income and his wife includes 30%. Equal split applies only when shares are not definite.

Where it goes wrong. Splitting equally because the co-owners are spouses, or taxing the entire amount in the higher-share owner’s hands.

Authority. Section 26 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.

Mr. Nitin owns a self-occupied house and has paid interest of ₹2,50,000 on a housing loan during FY 2026-27. He follows the default tax regime. What is the deduction under section 24(b)?

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

Answer: D — Nil

Explanation. Under the default tax regime, no deduction under section 24(b) is allowed for a self-occupied house. Therefore the ₹2,00,000 ceiling does not apply because the deduction itself is disallowed. The interest of ₹2,50,000 cannot be claimed. Deduction is nil.

Where it goes wrong. Applying the ₹2,00,000 ceiling and selecting ₹2,00,000 despite the default regime disallowance.

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

Ms. Kavita completed construction of her self-occupied house on 31 March 2026. Pre-construction interest was ₹3,00,000. She follows the default tax regime. What amount of pre-construction interest is deductible under section 24(b) for FY 2026-27?

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

Answer: D — Nil

Explanation. Pre-construction interest is allowed in five equal installments from the year of completion under the normal provisions. However, under the default tax regime, section 24(b) deduction for a self-occupied house is disallowed. Therefore no pre-construction interest installment is deductible. The answer is nil.

Where it goes wrong. Computing the ₹60,000 installment and allowing it without considering the default regime disallowance.

Authority. Section 24(b) of the Income-tax Act, 1961; Section 115BAC 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. Sameer owns a house that is deemed let-out under section 23(4). Municipal value is ₹6,00,000, fair rent is ₹7,00,000 and standard rent is ₹6,50,000. What is the annual value?

1. ₹6,00,000
2. ₹6,50,000 (correct answer)
3. ₹7,00,000
4. Nil

Answer: B — ₹6,50,000

Explanation. A deemed let-out property is treated as if it were let out. Reasonable Expected Rent is higher of municipal value ₹6,00,000 and fair rent ₹7,00,000, i.e. ₹7,00,000, restricted to standard rent ₹6,50,000. Since there is no actual rent, the annual value is Reasonable Expected Rent of ₹6,50,000.

Where it goes wrong. Taking annual value as nil because the property is not actually let out, or choosing ₹7,00,000 without the standard rent cap.

Authority. Section 23(4) of the Income-tax Act, 1961; Section 23(1) 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.

Mr. Hemant recovered unrealized rent of ₹50,000 in FY 2026-27. He had claimed a deduction for this unrealized rent in FY 2024-25. What amount is taxable under section 25A for FY 2026-27?

1. ₹50,000
2. ₹35,000 (correct answer)
3. ₹15,000
4. Nil

Answer: B — ₹35,000

Explanation. Recovery of unrealized rent is taxed at 70% of the amount recovered in the year of receipt. 70% of ₹50,000 = ₹35,000. Whether a deduction was claimed earlier does not change the 70% taxability. The balance 30% is not taxable.

Where it goes wrong. Taxing the full ₹50,000 because a deduction was claimed earlier, or allowing a further deduction.

Authority. Section 25A of the Income-tax Act, 1961

Question 17 · 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 house property is co-owned by Mr. Ravi and his major son, with Mr. Ravi having a 60% share and his son 40%. The house is let out. How is the income taxed under section 26?

1. Entire income is taxed in Mr. Ravi’s hands
2. Income is split equally between both co-owners
3. Mr. Ravi is taxed on 60% and his son on 40% (correct answer)
4. Income is clubbed in the hands of the higher-income co-owner

Answer: C — Mr. Ravi is taxed on 60% and his son on 40%

Explanation. Section 26 taxes co-owners with definite shares in proportion to their shares. Mr. Ravi has 60% and his son 40%. Each includes their respective share in total income. The relationship between co-owners does not change the proportionate taxation. Clubbing provisions are separate and do not apply merely because they are related.

Where it goes wrong. Applying clubbing provisions or splitting equally because the co-owners are related.

Authority. Section 26 of the Income-tax Act, 1961

Question 18 · 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. Tarun owns one house, which remained vacant throughout FY 2026-27 because he was working abroad. He did not use it for his own residence. How is the house treated?

1. As self-occupied with annual value nil
2. As deemed let-out under section 23(4) (correct answer)
3. As exempt because it was vacant
4. As a business asset

Answer: B — As deemed let-out under section 23(4)

Explanation. A house is treated as self-occupied only if it is used for the owner’s own residence. If it remains vacant and is not used for residence, it is deemed let-out under section 23(4), even if the owner owns only one house. Vacancy does not automatically make it self-occupied. Its annual value is computed as if it were let out.

Where it goes wrong. Treating a vacant house as self-occupied and taking annual value as nil merely because the owner owns only one house.

Authority. Section 23(4) 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.

Ms. Neha received arrears of rent of ₹80,000 in FY 2026-27. Out of this, ₹20,000 related to a property that was self-occupied in the earlier year and no deduction was claimed. What amount is taxable under section 25A?

1. ₹80,000
2. ₹56,000 (correct answer)
3. ₹42,000
4. ₹14,000

Answer: B — ₹56,000

Explanation. Section 25A applies to arrears of rent received, regardless of whether the property was let out or self-occupied in the earlier year. The entire arrears of ₹80,000 are taxable at 70%. 70% of ₹80,000 = ₹56,000. The fact that part related to a self-occupied property does not exempt that part from section 25A.

Where it goes wrong. Excluding the ₹20,000 relating to the self-occupied period and taxing only 70% of ₹60,000.

Authority. Section 25A of the Income-tax Act, 1961

Question 20 · 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. Kunal owns a house that is deemed let-out under section 23(4). The municipal value is ₹5,00,000, fair rent is ₹6,00,000 and standard rent is not applicable. What is the annual value?

1. ₹5,00,000
2. ₹6,00,000 (correct answer)
3. Nil
4. ₹5,50,000

Answer: B — ₹6,00,000

Explanation. A deemed let-out property is treated as let out. Reasonable Expected Rent is the higher of municipal value ₹5,00,000 and fair rent ₹6,00,000, which is ₹6,00,000. Standard rent does not apply. Therefore annual value is ₹6,00,000. There is no actual rent to compare.

Where it goes wrong. Taking municipal value of ₹5,00,000, or taking annual value as nil because the property is not actually let out.

Authority. Section 23(4) of the Income-tax Act, 1961; Section 23(1) of the Income-tax Act, 1961