What is income from house property ?
The charge-ability of income from house property, under the head “Income from house property” is subject to the satisfaction of the following three conditions:
The property means a unit or apartment, house with roof . Assessee should own the property; and The property should not be used by the owner for the purpose of any business or profession carried on by assessee.
Unless, therefore, all the aforesaid conditions are satisfied, the property income cannot be charged to tax under this head.
NOTE: Incidence of tax u/s 22 is attracted only if assessee is owner of house property. Income from subletting is not taxable u/s 22 but is taxable u/s56 under the head. Income from other sources.
Income from house property calculation
What is Annual Value
Annual value can be determined by taking into consideration the following four factors Rent payable by the tenant;
Municipal value of property (MV)
Fair rent or market value of rental ; (FR)
Actual Rental Value (AR)
Standard rent under the Rent Control Act. (SR)
Calculation of income from house property
Find out “gross annual value” which will be the maximum of the following three: Municipal value grosses
Actual rent; and
Fair rent, i.e. Market value of similar properties .
Gross annual value cannot, however, exceed “standard rent” determined under the relevant Rent Control Act.
Computation of income from house property
NOTE: Where the property is let out & was vacant during the whole of the previous year and owing to such vacancy, the actual rent received or receivable by the owner in respect thereof is less than the Gross Annual Value, the amount so received or receivable will be taken as gross annual value.
The amount of actual rent received or receivable by the owner shall not include the amount of rent, which the owner cannot realise.
Deduct municipal taxes (only deduct when it is borne by the owner, and deductible in the year in which such taxes are actually paid).
Income from house property deductions
There are three majon deductions from GAV Income from Property
- Municipal Taxs paid by owner
- Allow Standard deduction @30%.
- Deduction of interest on Housing Loan. (upto 2 lacs in self occupied property)
Income from house property self occupied
Annual value of one self occupied property utilized throughout the previous year for self residential purposes shall be taken to be nil, if the following conditions are satisfied:
The property is not actually let during any part of the previous year; and No other benefit is derived there from.
If a house cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the house will be treated as self occupied house.
Interest on loan taken from bank is allowable as deduction on accrual basis if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.
Interest on borrowed capital is deductible as under:
Interest on borrowed capital for the p reconstruction period = Interest payable by an assessee in respect of funds borrowed for the acquisition or construction of a house property pertaining to the period prior to the previous year in which such property has been acquired or constructed, to the extent it is not allowed as deduction under any other provision of the Act, is deductible in five equal installments commencing from the previous year in which the house is acquired or constructed.
In case of self-occupied property, interest is deductible subject to a maximum of Rs. 30,000. If the property is acquired or constructed with capital borrowed on or after April, 1999 and property is acquired or constructed before April 2003, the amount of deduction will be limited to Rs. 2,00,000.
In case of let out property, there is no limit for the deduction of interest on capital borrowed but the Net income from house property should not be negative.
Taxation of Unrealized Rent [Sec. 25AA]
Where the assessee cannot realize rent from a property let to a tenant and subsequently the assessee has realized any amount in respect of such rent, the amount so realized shall income chargeable under “Income from House Property” of that previous year in which such rent is realized whether or not the assessee is the owner of that property in that previous year.According to Sec.25B, the amount of arrears of rent will be taxable in the year of receipt after deducting a sum equal to 30% of such arrears.
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