House Property: Income from House Property Calculation
Income
from house property is calculated in the manner provided in The Income Tax Act.
Calculation of Income from House property is done under the lights of section
22, 23, 24, 25, 25A, 25AA, 25B, 26 and 27 of the Income Tax Act. Income from
house property is charged to tax as per section 22 of the Income Tax Act, which
states as follows:
22. The annual value of
property consisting of any buildings or lands appurtenant thereto of which the
assessee is the owner, other than such portions of such property as he may
occupy for the purposes of any business or profession carried on by him the
profits of which are chargeable to income-tax, shall be chargeable to
income-tax under the head "Income from house property".
Explanation
There
are three conditions; fulfillment of which will consider the income as Income
from House Property:
1.
Assessee is the owner
2.
The property should have a building or any land attached thereto.
3.
The property must not be used by the assessee for the purpose of his business
and profession.
Points to be
considered while calculation Income from House Property:
v Annual Value of Property: The annual value of house
property will be as follows:
-
Where the Property in
not let out: The
value at which the same house property can be rented / let out
-
Where the Property is
let out: There
can be many consequences such as;
o Property is Fully let out:
Higher of, Actual Rent received
or the value at which the same house property can be rented / let out
o Property is Partly let out:
Higher of, Actual Rent received
or the value at which the same part of house property can be rented / let out
o Property or any part of property is Vacant for whole year or
part of year:
Lower of, Actual Rent received
or the value at which the same part of house property can be rented / let out
-
Where the Property includes some unusable part such as when it is used for the business &
Profession of the assessee or is used for his own residence than the value will
be taken as Nil.
o The above will be
subject to condition that such part could not have been let out by the assessee
during any time of the previous year.
-
Where the Property includes more than two houses the assessee
has to choose one for his own residential purpose, it will not attract the
sections of Income Tax Act to charge tax on it.
o
But the other which is not chosen as the residential house
by the assessee will attract the taxes on deemed income of let out if not
actually let out and on rent income if it is let out.
v When any Taxes are levied by a local
authority in respect of any property it shall always be deemed to include
service taxes and all such taxes are allowed as deduction when they are
actually paid. Thus the year in which such taxes are taxable is not taken into
consideration.
v Deductions allowable on computation of Income from House Property:
-
30% of the Annual Value as calculated above
-
Interest payable when capital is borrowed for construction,
acquisition, repairs, renewal or reconstruction of such house property subject
to following conditions:
o Where the property includes
some unusable part such as when it is used for the business & Profession of
the assessee or is used for his own residence and the annual value will of
which will be taken as Nil – Maximum Rs. 30,000
o Where the property is
acquired or constructed using borrowing on or after 01.04.1999 and the
construction and / or acquisition is completed within three years from the end
of financial year in which capital is borrowed, i.e. capital borrowed on
01.02.2000, the end of financial year is 31.03.2001. so the construction and /
or acquisition must be complete on or before 31.03.2004 – Maximun Rs. 1,50,000.
Explanation
-
Where the property has been acquired or constructed with borrowed
capital, the interest, if any, payable on such capital borrowed for the period
prior to the previous year in which the property has been acquired or
constructed shall be deducted in the following manner:
o equal instalments for
five years commencing from the same previous year.
-
Deduction can only be claimed if the assessee can furnishes
a certificate, from the person to whom any interest is payable on the capital
borrowed, specifying the amount of interest payable by the assessee for the
purpose of such acquisition or construction of the property, or, conversion of
the whole or any part of the capital borrowed which remains to be repaid as a
new loan.
-
New loan will mean the whole or any part of a loan taken by
the assessee after the capital borrowed, for the purpose of repayment of capital
borrowed prior to it.
v Arrears of rent received
When the assessee has
let out the house property being an owner and if he receives the rent which was
in arrears in any previous years, the chargeable amount under “Income from
House Property” will be calculated as follows:
Rent
received which was in arrears
XXX
Less: 30% of the Amount so received (XXX)
Income
from House Property
XXX
v Property
owned by co-owners
When there are more than one owner of one house property, the income will
not be considered as income of association of person but on individual share of
the asessee.
v Certain definitions to understand the concept
Owner of the House Property: an individual who transfers
otherwise than for adequate consideration any house property to his or her
spouse, not being a transfer in connection with an agreement to live apart, or
to a minor child not being a married daughter, shall be deemed to be the owner
of the house property so transferred.
Deemed Owner as per section 27:
27 ii) the holder of an impartible estate shall be deemed to be the
individual owner of all the properties comprised in the estate
27 (iii) a member of a co-operative society, company or other
association of persons to whom a building or part thereof is allotted or leased
under a house building scheme of the society, company or association, as the
case may be, shall be deemed to be the owner of that building or part thereof ;
27 (iiia) a person who is allowed to take or retain possession of
any building or part thereof in part performance of a contract of the nature
referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882),
shall be deemed to be the owner of that building or part thereof ;
27 (iiib) a person who acquires any rights (excluding any rights by
way of a lease from month to month or for a period not exceeding one year) in
or with respect to any building or part thereof, by virtue of any such
transaction as is referred to in clause (f) of section 269UA, shall be deemed
to be the owner of that building or part thereof;
Example
Details of Mr X. for the Financial Year 2012-13. He owns two
houses.
|
Particulars
|
House I
|
House II
|
|
Municipal
Value of the house
|
480000
|
720000
|
|
Standard
Rent
|
360000
|
600000
|
|
Date of
completion of construction
|
--
|
10.05.2011
|
|
Interest
for the Year on borrowed capital
|
--
|
190000
|
|
Municipal
Taxes paid
|
5000
|
6200
|
Compute
Income from House Property.
Solution:
Income from House
Property
|
Particulars
|
House I
|
House II
|
|
Gross
Annual Value of the house
(Higher of
Municipal Value and fair value subject to Standard Rent)
|
360000
|
600000
|
|
Less:
Municipal Taxes
|
5000
|
6200
|
|
Net Annual Value
|
355000
|
593800
|
|
Less:
30% Deduction
|
106500
|
178140
|
|
Interest on Capital borrowed (Maximum rs.
150000)
|
--
|
150000
|
|
Income from House
Property
|
248500
|
415660
|
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