INCOME FROM HOUSE PROPERTY

INCOME FROM HOUSE PROPERTY
House property for this purpose means :
Any building which has the characteristic
features of a building.
E.g.: residential building, cinema theatres etc.

INCOME FROM HOUSE PROPERTY Taxed on “Notional Basis”

Conditions for taxing income under the head house property.
There should be a building or a land appurtenant there to .
AND
The property should be owned by the assessee.
AND
Such building should not be used for own business or profession.

Section 22(Charing Section)
“ The Annual Value of building or land appurtenant thereto is chargeable to tax in the hands of the owner provided the same is not used for own business or profession”.
E.g.: CASE 1: Mr. X lets out a HP to Mr. Y, who intends to carry on his private business. – Income from HP.

CASE 2: Mr. X uses his property to carry on his own private business. – No income from HP.

Exceptions to the rule – that the rental income is taxable under HP.
Income from sub letting – Income from OTHER SOURCES since the assessee is not the owner.
Composite rent – When a building has been let out along with the furniture , then such letting out is called composite letting.
As per sec 56(2) , when the rent is inseparable – income from other sources.

As per CIT vs. SHAMBHU INVESTMENTS PVT. LTD., (2003) (s.c) such inseparable composite rent is taxable under the head HP.
At present Supreme Court decision has to be followed.

Section 23( Annual Value)
Sec 23(1)(a) –
AV = Rent at which the HP is reasonably expected to be let out.

Sec 23( Annual Value)
Sec 23(1)(b) –
If the house property is actually let out and if rent received or receivable is higher than the reasonable rent as per sec 23(1)(a), then such rent received or receivable is taken as the ANNUAL VALUE.

Sec 23(1)(c) –
If the property is actually let out and was vacant during the year and rent received or receivable is lesser due to vacancy then such lower rent shall be the annual value.

Sec 23(2) –
If a HP is self occupied .
OR
If a HP couldn't be occupied for reasons of employment / profession elsewhere.
In such cases the AV= NIL.

Sec 23(3) –
Conditions for sec 23(2)-
Such HP shouldn't be let out during any part of the year.
AND
No other income is derived from such property.

Sec 23(4) –
If the assessee owns more than one Sec 23(2) property then:
AV of one HP at the option of the assessee is NIL.
AND
All the other HP’s are Deemed Let Out Property [DLOP] and annual value thereof is decided as per sec 23.

Section 24 Deductions.
SEC 24(a)-Standard deductions @30% of NAV – only for let out property and deemed let out property.
SEC 24(b)- interest on capital or loan borrowed for ACR 3 (acquisition ,construction, renewal ,repairs and reconstruction) in respect of
1. LOP/DLOP – any amount is allowed
2. SOP – Deductions is as follows:

SOP Deductions
- Normal deductions up to Rs 30000/-
- Special deduction up to Rs 150000/-

IMPORTANT NOTES
Interest deduction up to Rs 150000/-.It is available only for acquisition and construction. Provided:
(a) The loan taken on / after 01-04-1999 . & construction completed within 3 years from the end of the financial year in which loan is borrowed.
(b) For claiming deduction’s interest certificate & details of principal outstanding , interest amount etc. Along with return of income .

Pre- Construction Period Interest
Allowed in five equal installments commencing from the year of completion.
PCP means period commencing from the date of loan or immediately preceding the March 31 st of the year of completion which ever is earlier.

Section 25( amounts not deductible)
Interest paid outside India without TDS or Without having an arrangement for TDS in India is disallowed.

Section 25A( Unrealized rent recovered)
UR recovered is taxed in the year of receipt irrespective of whether assessee is the owner or not of such property in the year of such receipt . No deduction is allowed against this income.

Section 25B( Arrears of rent received)
It is taxable in the year of receipt irrespective of whether assessee is the owner or not of such property in the year of such receipt.
Deduction = 30%

Section 26( Property owned by Co- Owners)
Share of co-owners definite, ascertainable respective share is taxable in the hands of the co owner.
Share of co-owners not definite, ascertainable entire income is taxed as the income of AOP.

Important Points
Annual value of partly SO & partly vacant
Period based (i.e. 9 months – SOP & 3 months – vacant) = ANNUAL VALUE = NIL Usage based (i.e. 75% used as – SOP & 25% as – vacant) = ANNUAL VALUE = 25% .

Important Points
Annual value of partly SO & partly LO
Period based (i.e. 9 months – SOP & 3 months – LOP) Usage based (i.e. 75% used as – SOP & 25% as – LOP) Treated as DLOP for entire period. AV of SOP NIL. AV of LOP to be taken at 25%.

Presented by :
Anirudh Prasad-05A078.
Amrut .V.Katwa-05A077.

INCOME FROM HOUSE PROPERTY

by Augustin Amaldas on Aug 08, 2008

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