Income From House Property New 2008 09 Assessment YearPresentation Transcript
Income from House property By Prof. Augustin Amaladas M.Com., AICWA.,PGDFM., B.Ed. Education for all St. Joseph’s College of Commerce, 163, Brigade Road, Bangalore India Learn Management Accounting Learn Income tax www.augustin.co.nr Costing, Auditing Free web, freely downloadable International Finance Financial Management Merger and Acquisition, demerger For B.com., BBM., M.Com. CA., ICWA, CS, CFA students
INCOME FROM HOUSE PROPERTY
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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” Give to others especially knowledge without expectation
Conditions for taxing income under the head house property.
There should be a building or a land appurtenant there to .
The property should be owned by the assessee.
Such building should not be used for own business or profession.
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Section 22(Charging Section)
“ The Annual Value (likely reasonable rental 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.
Note:- It is not taxed on monthly basis or
Even if it is rented for a day of the previous year it is calculated annually(financial year-1 st April-31 st March of the following year)
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CASE 2: Mr. X uses his property to carry on his own private business. – Income from such property does not come under income from House Property but income from business( Refer to www.augustin.co.nr for income from Business.
Knowledge meant for giving not holding to oneself
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.
Threat is an opportunity
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.
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Section 23( Annual Value)
Sec 23(1)(a) –
Annual Value = Rent at which the HP is reasonably expected to be let out.
Note: Income from house property is calculated on 12 months rental value of the property not on receipt basis.
Receiving rent is not important.self occupied house property comes under this head. Income includes loss. Therefore we can show loss from house property including self occupied and rented house property or deemed let out property.
Go to government schools offer a pencil or note book to a girl or boy which encourage such girl/ boy to study well rather than giving donation to school authorities.
Very important Basic concepts
1.Loss from self occupied property is possible if assessee has to pay interest on loan borrowed.
2.Net annual value is always ZERO for 100% self occupied property.(throughout the year the house occupied by the owner)
2a). If owner stays in more than one house the owner can choose any one of the houses (he can choose different houses for different previous year) which will reduce overall tax liability.
3.Even one day self occupied house property is rented it is deemed to be let out(treated as let out)
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4.Owner ship of the building is important
5. Building normally have roof, but roof is not important to constitute a building.Four walls can constitute a building.
6.Registration of property is not primary to be the owner of the property. Part payment is made and house occupied will lead to be the owner of the property as per the transfer of property act(53A).
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7.property transferred for inadequate consideration to minor children or wife, income is computed in the hands of transferee but taxed in the hands of transferor as per section 64.
Example:- Father transferred property worth Rs.20,00,000 to wife for Rs. 5,00,000, then the income from house property(fair rental value) is computed in the hands of wife but taxed ¾ th is taxable in the hands of father and ¼ th taxable in the hands of wife(as ¼ paid).
8.If property is in foreign country, in case of resident assessees, the property to be valued in foreign currency as per normal calculation and convert the foreign currency into Indian rupee on the last day of the financial year which is taxable income under the head income from House property.
9.If a person doing business by selling building (real estate) and during vacant period, rent such building, such rent comes under business. If such building(stock in trade) is rented to employees, rent collected from employees considered as business income.
If rented to third parties it comes under income from house property.
When we compute income from house property we consider four walls which can fetch the owner to be considered.As per section 22 of the income tax act ‘rental value of the building’ is considered but the extra facilities like lift, swimming pool if rent collected along with rent of four walls it should be separated to compute rental income from house property.
When net annual can be negative
11.If municipal tax paid by the owner during the previous year ( need not be for the previous year ) exceeds gross annual value, the net annual value can be negative.
12.Note: Municipal taxes paid during the previous year only deductible in case of let out property.
13.If municipal tax of 2003-04 period paid during current previous year paid by the owner it is deductible.it is always on payment basis.
14.Anything to government it is always on payment basis. Anything to private parties even payable is deductible: interest on loan payable can be shown as deduction u/s 24(b).
15.If net annual value is negative(If municipal tax paid exceeds gross annual value) or incase of self occupied house property net annual value is nil, standard deduction deduction [u/s 24(a)] of 30% is not applicable.
16.Unrealised rent of the current previous year is deductible only from actual rent not from expected rent.But vacancy allowance can be deducted from either from actual rental value or expected rent(if chosen).
Alternative work is rest
17.Unrealised rent of the current previous year is deductible only from actual rental value if certain conditions like tenant vacated the premises, such tenant is not staying in any one of the houses of the same owner, case had been filed against the tenant.
18.If actual rent (after deducting unrealised rent of the current previous year and vacancy allowance) is less than reasonable rent nly because of vacancy we can chose actual rent.
Actual rent means
19.Actual rental value for 12 months
Less: unrealised rent for the current previous year( Not considered the unrealised rent of preceding to current previous year)
Less: vacancy allowance
Balance is considered as actual rent.
20.If a house is part of the year self occupied and remaining part of the year is self occupied it is considered as letout(deemed let out).
21.Municipal taxes levied by foreign authority in house property in abroad is deductible while computing house property.
22.Interest on loan borrowed includes 12 months interest of the current previous year +1/5 th of pre-construction period interest.
23.If loan taken after 1 st April 1999 not for extension like repairs, and renuals, such interest is deductible for self occupied property Rs.30,000 only.
Basic concepts-interest on loan
24.Interest on loan borrowed is fully deductible for let out or deemed let out(partly self occupied and partly let out) property with out any limit.It means we can show negative income under such property unlimited.
Un realised rent realised Belong to Assessment year 2001-02 Earlier(Sec.25A) Belong to After assessment year 2001-02 (Sec.25AA) Fully taxable Expenditure in relation to Such collection is not deductible (Amount collected- 30% of amount collected) Taxable
Arrears of rent(Section 25 B)
25.Suppose rent of 2006-07 was Rs. 8000. In the year 2007-08 it is agreed that the rent should be paid at the rate of 10000 per month effect from 2006-07 onwards, then such arrears of rent(difference between 10000-8000) to be paid now during the current previous year is known as arrears of rent.
(Arrears of rent received- 30% of such arrears)is taxable
26.Can we deduct interest on loan even if the net annual value is negative?
Yes you can.
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When compute tax calculate 3% educational cess on tax computed and add to tax to find total tax.
Tax +3%(tax)= total tax
27.Principal repayment on loan
It is not deductible from house property. But we can deduct it as savings u/s 80C when we compute total income under various heads.
Test yourself-conceptual questions
1.Land allotted by co-operative society to Mr.X and building is constructed by Mr.X. Annual interest and principal are being paid since then.Whether such property is taxed under house property of X or not?
2. Land belong to Mr. Ranbir Singh but building constructed and owned by Mr. Ranga swamy(he is not the owner of the land).Whether income from house property taxed in the hands of Ranbir Singh or Rangaswamy?
3.Municipal taxes for the year 2004-05 period paid during current previous year and current previous year municipal taxes not yet paid.Whether they are deductible for the current previous year?
4. Interest on loan and principal amount are not yet paid by the assessee for the current previous year. Are they deductible or not ?
5.Interest on loan for the previous year 2005-06 paid during the current previous year. Are they deductible?
6. Repairs –Rs. 3000, maintenance Rs. 4000 and insurance Rs.5000 are paid during the year on a rented house for business.Are they deductible?
Answer the question and for any clarification contact: firstname.lastname@example.org
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( 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.
Section 23( Annual Value)
Sec 23(2) –
If a HP is self occupied .
If a HP couldn't be occupied for reasons of employment / profession elsewhere.
In such cases the AV= NIL.
Sec 23( Annual Value)
Sec 23(3) –
Conditions for sec 23(2)-
Such HP shouldn't be let out during any part of the year.
No other income is derived from such property.
Section 23( Annual Value)
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.
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(100%Self occupied property) Deductions
- Normal deductions up to Rs 30000/-for repairs or renuals or if loan taken before 1 st April 1999.
- Special deduction up to Rs 150000/- for further construction
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.
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% .
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%.
Exercise 1(basic calculation)
Find out the gross annual value in the following cases for the assessment year 2008-09
( Rs in thousands)
The entire rent is realized. Properties are let out throughout the previous year. Find out the gross annual value for the assessment year 2008-09. X Y Z Municipal value 95 60 60 Fair rent 96 54 55 Standard rent under the rent Control Act 94 78 79 Actual rent 93 106 78
Computation of gross annual value:
( Rs in thousands)
X (Property-1) Y(Property-1) Z(Property-1) Municipal value Fair rent Whichever is higher Standard rent Whichever is lower(Expected rent) Annual rent = 12 months rental value-unrealised rent of the current year-vacancy allowance Whichever is higher GROSS ANNUAL VALUE
Computation of gross annual value:
( Rs in thousands)
X Y Z Municipal value 95 60 60 Fair rent 96 54 55 Whichever is higher 96 60 60 Standard rent 94 78 79 Whichever is lower(expected rent) 94 60 60 Annual rent 93 106 78 Whichever is higher 94 106 78 GROSS ANNUAL VALUE 94 106 78
Exercise 2(let out and part of the year rented and sold later) X owns a house property (municipal valuation: Rs. 145000, fair rent : Rs 130000, standard rent : Rs. 124000). It is let out throughout the previous year (rent being Rs. 8000 per month up to November 15, 2007 and Rs. 14000 per month thereafter). The property is transferred by X to Y on January 31, 2008. Find out the gross annual value in the hands of Y for the assessment year 2008-09.
Solution 2 Computation of gross annual value for ( Y ): Rs ( in thousands ) Municipal value from 1-02-2008 to 31-03-2008 ( 145000/12 x 2) 24167 Fair rent from 1-2-2008 to 31-3-2008 (130000/12 x 2) 21667 Whichever is higher 24167 Standard rent (124000/12 x 2) 20667 Whichever is lower(Expected rent) 20667 Annual rent (14000 x 2) 28000 Whichever is higher 28000 GROSS ANNUAL VALUE 28000
Exercise 3(including unrealised rent) Find out the gross annual value after taking into consideration the following information for the assessment year 2008-09. (Rs.in thousand) CONT……… A B C M N Municipal value 50 50 50 100 100 Fair rent 68 68 68 117 117 Standard rent under rent control act 62 62 75 115 115 Annual rent 66 66 72 120 110 Unrealized rent of the previous year 2007-08 2 6 5 50 40
In the case of X, the defaulting tenant has not vacated the property, nor steps been taken to compel the tenant to vacant the property.
In the case of Y, the defaulting tenant has occupied another property of Y.
Z has not taken any steps to institute legal proceedings for the recovery of unpaid rent , though Z agrees that legal proceedings will not be useless.
A has rented out another property owned by him to defaulting tenant with effect from March 1, 2008.
B satisfies all the conditions of rule 4.
Note : Application of sec 23 ( 1 ). When unrealized rent of the current previous year shall be deducted if following conditions fulfilled. Condition 1 The tenancy is bona fide. Condition 2 The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property. Condition 3 The defaulting tenant is not in occupation of any other property of the assessee. Condition 4 The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
Solution 3 Computation of gross annual value: ( Rs in thousands ) A B C M N Municipal value 50 50 50 100 100 Fair rent 68 68 68 117 117 Whichever is higher 68 68 68 117 117 Standard rent 62 62 75 115 115 Whichever is lower(Expected rent) 62 62 68 115 115 Annual rent 66 66 72 120 110 Unrealized rent 2 6 5 50 40 Actual rent ( annual rent – unrealized rent- vacancy allowance ) 66 66 72 120 70 Whichever is higher 66 66 72 120 115 GROSS ANNUAL VALUE 66 66 72 120 115
Exercise 4(loss due to vacancy) Find out the gross annual value in the case of M if his property remains vacant throughout the previous year 2007-08 and, consequently, the figure of annual rent is not available. Also calculate gross annual value in the cases of N and O if their properties remain vacant for one month only for the assessment year 2008-09.(Rs in lakhs) M N O Municipal value( per annum) 80 140 140 Fair rent( per annum ) 78 150 150 Standard rent 85 120 120 Annual rent 75 100 144 Property remains vacant (in no of months) (12) (1) (1) Loss due to vacancy __ 8 12
Solution 5 Computation of gross annual value: (Rs in thousands) M N O Municipal value 80 140 140 Fair rent 78 150 150 Whichever is higher 80 150 150 Standard rent 85 120 120 Whichever is lower(Expected rent) 80 120 120 Annual rent 75 100 144 Property remains vacant (in no of months) (12) (1) (1) Loss due to vacancy ---- 8 12 Actual rent Nil 92 132 GROSS ANNUAL VALUE NIL 112 132
How to decide reasonable rent? (If actual rent minus un realised rent of the current previous year) is more than expected rent then we say he is reasonably letting out The property.And if we reduce further vacancy allowance, even if it goes down below expected rent, we consider the actual rent.
Intermission Be truthful to your parents. Work hard.
Case of A: Rent actually collected is zero. The entire loss is because of vacancy. Therefore gross annual value is zero.
Case of C: Property is let out at lower than the reasonable expected rent. Lower rent collection is partly because of vacancy and partly because of letting out of property at lower than reasonable expected rent. Therefore only loss due to vacancy i.e. Rs 8000 is deducted from the reasonable expected rent. Rs( 120000 – 80000 ).
Case of D: Actual rent collection is lower only because of vacancy. Therefore, actual rent is taken as gross annual value.
Exercise 5Vacant through out the year) Find out the gross annual value for the assessment year 2008-09 assuming that the property of X remains vacant throughout the previous year 2007-08. However, the property of Y remains vacant from April 1, 2007 to January 31, 2008 and it is let out from February 1, 2008 onwards (rent being Rs. 10000 per month). X Y Municipal value (per annum) 61000 61000 Fair rent( per annum) 72000 72000 Standard rent under the rent control act 60000 60000
Computation of gross annual value:
If actual rent is lower than the reasonable expected rent only due to vacancy then, such rent is taken as gross annual value. X Y Municipal value 61000 61000 Fair rent 72000 72000 Whichever is higher 72000 72000 Standard rent 60000 60000 Whichever is lower 60000 60000 Period when the property remains unoccupied ( months ) 12 10 Actual rent Nil 20000 GROSS ANNUAL VALUE NIL 20000
Exercise: 6(vacancy and unrealised rent preceding to current year Rs.000 Find out the gross annual value for the assessment year 2008-09 for case A if the property is let out (rent being Rs. 48000 per annum) only for 10 months, vacant for 2 months and rent of 4 months could not be realized for the year 2006-07 Rs. 20,000. A Municipal value 140 Fair rent 145 Standard rent 142
Computation of gross annual value:
( Rs in thousands ) A Municipal value 140 Fair rent 145 Whichever is higher 145 Standard rent 142 Whichever is lower 142 Annual rent if property is let out throughout the previous year 48 Unrealized rent of current previous year 2007-08(only) 16 Period when the property is vacant ( months ) ( 2 ) Loss due to vacancy( 48000/12 x 2 ) 8 Actual rent received/ receivable 24 GROSS ANNUAL VALUE 134
Exercise 7 X CONT….. (Rs). Municipal value 120000 Fair rent 130000 Standard rent under the rent control act 110000 Actual rent if property is let out throughout the previous year 126000 Unrealized rent of the previous year 2007-08 10500 Period when the property remains vacant (in no of month) (1) Loss due to vacancy 10500 Municipal taxes- Tax of the year 2007-08 18000 - Paid by X during 2007-08 17000 - Paid by X after March 31,2008 1000
Find out the income of property of X chargeable to tax for the assessment year 2008-09, after considering the following information-
During the previous year 2007-08, X gets 6months’ advance rent from the tenant pertaining to the period April 1, 2008 to September 30, 2008; and
apart from paying municipal tax, no other expenditure is incurred by X in respect of the house property for generating income from property.
Any advanced rent received cannot be considered as per sec 22 as it is the annual value(on accrual) of the property which is taxed.
Computation of income from house property: X Municipal value 120000 Fair rent 130000 Whichever is higher 130000 Standard rent under the rent control act 110000 Whichever is lower 110000 Annual rent if property is let out throughout the previous year 126000 Unrealized rent of the previous year 2007-08 10500 Period when the property remains vacant( in no of month) (1) Loss due to vacancy(126000/12x1) 10500 Actual rent (annual rent – unrealized rent – loss due to vacancy) 105000 GROSS ANNUAL VALUE (actual rent lower than expected rent only because of vacancy. So consider actual rent) 105000 Less: Municipal tax paid by X during the previous year 2007-08 17000 NET ANNUAL VALUE 88000 Less: Standard deduction under section 24(a) [30% of net annual value] 26400 INCOME FROM HOUSE PROPERTY 61600
Exercise 8(interest on loan) X takes a loan on January 3, 2004 of Rs. 160000 at 18 per cent per annum for construction of a commercial house property. Construction of the property is completed on July 17, 2007. Loan is repaid on November 30, 2007. Calculate the amount of interest which is deductible for the assessment years 2008-09 and 2009-10. Pre construction interest is the period starting from the date of loan Taken and 31 st March preceding the year of completion.
Loan taken = January 3 rd 2004
Amount= Rs. 160000
Interest rate = 18%
Date of completion of construction = 17 th July 2007
Date of repayment of loan = 30 th November 2007
Pre construction period = Jan 3, 2004 – March 31 st 2007
i.e., 89 days.
Pre construction interest=
(89/366) x 160000 x (18/100) = Rs. 7003.28
1 st April 2004 – 31 st March 2005 = (160000 x 18/100) = Rs. 28800
1 st April 2005 – 31 st March 2006 = (160000 x 18/100) = Rs. 28800
1 st April 2006 – 31 st March 2007 = (160000 x 18/100) = Rs. 28800__
Note: pre construction period interest is spread over 5 years from the year of completion for the purpose of deduction under sec 24 (b)
If house is completed in the middle of any previous year go back to the last date Of the preceding previous year in which house completed to determine pre-construction period interest
(93403.28/5) = Rs. 18680.66
Post construction period: ( for previous year 2007-08)
1 st April 2007 – 30th November 2007
Calculation of post construction period interest:
(NOTE : Calculate interest for 8 months and deduct 1 days interest from that amount because interest on the date of repayment is not considered)
160000 x (18/100) x (8/12) = Rs. 19200
Less: 160000 x (18/100) x ( 1/366) = Rs. 78.69
= Rs. 19121.31
TOTAL INTEREST FOR THE ASSESSMENT YEAR(2008-2009):
Pre construction interest + post construction interest = 18680.66+19121.31
= Rs. 37801.97
TOTAL INTEREST FOR THE ASSESSMENT YEAR(2009-2010):
Pre construction interest only = Rs. 18680.66
( the last date to pay interest is November 30, 2007)
Exercise 9 (Interest on loan borrowed for marriage)
X owns a house property. It is used by him throughout the previous year 2007-08 for his (and his family members) residence. Municipal value of the property is Rs. 1,70,000, whereas fair rent is Rs. 1,76,000 and standard rent is Rs. 150000. The following expenses are incurred by X : repairs : Rs.30000, municipal tax : Rs.16000, insurance : Rs 20000; interest on capital borrowed to construct the property : Rs136000; interest on capital borrowed by mortgaging the property for daughter’s marriage : Rs.20000. Income of X from business is Rs.7,10,000. If capital borrowed:
For construction of the property on April 1, 1999 and construction is completed on December 2, 1999; OR
On April 1,1999 for repairs of the property and repair is completed on December 2,1999.
Find out the Net income of X for the assessment year 2008-09.
Computation of net income of X: (a) NOTE : Annual value is NIL if the house property is 100% self occupied. Rs NET ANNUAL VALUE NIL Less: Deductions under section 24
Standard deduction 24(a) – 30% of Net annual value
Interest on borrowed capital 24(b) – [ Maximum deduction of Rs. 150000 or Rs. 136000 whichever is lower]
(136000) Income from House Property as per Sec.22 (136000) Business income 710000 NET INCOME 574000
Computation of net income of X : (b) Preceding steps should not be calculated Rs NET ANNUAL VALUE NIL Less: Deductions under section 24
Standard deduction 24(a) – 30% of Net annual value
Interest on borrowed capital 24(b) – [ Maximum deduction of Rs. 30000 or Rs. 136000 whichever is lower]
(30000) Property income (30000) Business income 710000 NET INCOME 680000
Exercise 10(self occupied one and let out another)
X owns a residential house property. It has two equal residential units- (unit1 and unit 2). While unit 1 is self occupied by X for his residential purpose, unit 2 is let out ( rent being Rs. 11000 per month, rent of 2 months could not be recovered). Municipal value of the property is Rs. 130000, standard rent is Rs. 125000 and the fair rent is Rs. 140000. Municipal tax is imposed at 12% which is paid by X on April 1, 2008. Other expenses for the previous year 2007-08 being repairs : Rs. 250, insurance: Rs. 600, interest on capital borrowed on 1 st April 2005 for constructing the property: Rs. 63000. Construction of the house is completed on 31-3-06. find the income of X for the assessment year 2008-09 on the assumption that income of X from other sources is Rs.180000.
Even though house was completed on 31-3-06 we have stop on 31-3-05. Upto 31-3-05 was pre-construction period.
Computation of income from house property Unit 1 (self occupied) = NAV = nil Less: interest on borrowed capital = Rs. 31500 Income from unit 1 = Rs. (-)31500 Unit 2 ( let out ) : If you do not understand Go back to concepts To understand Municipal value Fair rent Whichever is higher Standard rent Whichever is lower Annual rent(a) Unrealized rent(b) Actual rent(a-b) Gross annual value(which ever is higher) Municipal taxes paid (not paid during the current PY.) Net annual value 65000 70000 70000 62500 62500 132000 22000 110000 110000 - 110000
Net income of X: Income from house property ( 45500 – 31500 ) = Rs. 14000 Income from other sources = Rs. 180000 Gross income = Rs. 194000 LESS: deductions under section 24 Standard deduction of 30% of NAV Interest on borrowed capital Income from house property 33000 31500 45500
Exercise 11 X owns a property at New Delhi (municipal value Rs 1,64,000, fair rent Rs 2,16,000, standard rent Rs 1,80,000). The property is let out up to April 15 2007. (rent being Rs 14000 p.m.) and self occupied for the remaining part of the previous year 2007-08. Expenses incurred by X are: Municipal tax Rs 6000 (actually paid), repairs Rs 2100, insurance Rs 1100, interest on capital borrowed (date of borrowing being June 10 th 1991) for acquiring the property :Rs 123000. Assuming the income of X from other sources is Rs 186000, find out the net income of X for the assessment year 2008-09
SOLUTION: Particulars Amount Municipal value Fair rent Whichever is higher Standard rent Whichever is lower Annual rent Gross annual value Less: municipal taxes paid Net annual value Less: deduction under section 24 Standard deduction of 30% of NAV Interest on capital Income from house property 164000 216000 216000 180000 180000 168000 180000 6000 174000 52200 123000 -1200
COMPUTATION OF NET INCOME : Income from house property = (-)1200 Income from other sources = 186000 Gross income = 184800
Exercise 12(arrears of rent) For the assessment year 2008-09, X claims a deduction of Rs. 86000 on account of unrealized rent and is awarded a decree by a Delhi court on march 15 th 2008 and on April 6, 2008, X recovers Rs. 80000 from the defaulting tenant ( legal expenditure Rs.25000). What will be tax implication of the amount so received?
SOLUTION : Rs. 80000 recovered from the defaulting tenant is chargeable to tax as income under the head “ Income From House Property” in the year of recovery i.e., the previous year 2007-08 or assessment 2008-09. expenditure of Rs. 25000 is not deductible.
Exercise 13(unrealised rent of 2000-01 period) X owns a house property which is given on rent. For the previous year 2000-01,he claims a deduction of Rs.78000 on account of unrealized rent, out of which the Assessing officer allows only Rs.62000 as deduction. What are the tax consequences if X recovers on April 6,2007 as full & final payment (A)Rs.78000 (expenditure on recovery Rs.40000) or (B)Rs.5000 (expenditure on recovery Rs.5000)
Solution: In situation (a) the full amt of recovery is taxable. In situation (b) X cannot claim any deduction Amt recovered during 2007-08 Amount of bad debt(78000-amount of recovery) Deduction allowed in 2000-01 Balance
NIL 73000 62000 62000 Income of 72000 Loss of 11000
Exercise 14(unrealised rent of different period, interest on loan borrowed) From the information given below find out the income under the head Income from House Property for the assessment years 2008-09 and 2009-10. Particulars Amount Municipal value (a) Fair rent (b) Standard rent (c) Annual rent (d) Unrealized rent for the previous year 2007-08 Unrealized rent for the year 2008-09 Unrealized rent for the year 2007-08 realized during previous year 2008-09 Interest on borrowed capital 190000 195000 170000 175000 20000 Nil 18000 36000
The above stated property is let out throughout the previous year 2007-08 and 2008-09. Municipal tax paid is at the rate of 20%.
Particulars 2008-09 2009-10 Actual rent received Gross Annual Value Step 1- expected rent (a ) or (b) which ever is higher but subject to max (c) Step 2 – if (d) is higher than step 1 , (d) will be taken Gross annual value Less: municipal tax paid (20 % of A) Net annual value Less : deduction under section 24 Standard deduction 30 % Interest on loan Income from house property 155 170 NA 170 38 132 39.6 36 56.4 175 170 175 175 38 137 41.10 36 59.90
Recomputation of gross annual value of the previous year 2007-08 Particulars Amount Annual value Less: effective unrealized rent Actual rent Step 1 –expected rent Step 2 – if (d) is higher than step 1, it would be taken Step 3 – NA Gross annual value (recomputed) Less: gross annual value (original) Unrealized rent not taxed earlier Less: deduction under section 24 Income Income under the head “ income from house property” Assessment year 2008 –09 Assessment year 2009-10 175 2__ 173 170 173 NA 173 170 3 ___ 3__ 56.40 62.90
Exercise 15(arrears of rent,municipal taxes paid different period) X owns a property. It is given on rent (rent being Rs 11000 p.m.) to a bank. Municipal value of the property is Rs 130000, fair rent is Rs 140000 and standard rent is Rs 134000. Municipal tax paid by X is as follows: Rs 26000 on March 3rd,2008 and Rs 30000 on May 10th 2008. on may 1st 2008 rent is increased from Rs 11000 p.m. to Rs 16000 p.m. with retrospective effect from April 1st,2007. Arrears of rent of 2007-08 are paid on May 1st 2008. Find out the income chargeable to tax for the assessment years 2008-09 and 2009-2010.
Solution Particulars 2008-09 2009-10 Municipal value Fair rent Whichever is higher Standard rent Whichever is lower Rent collected Gross Annual Value Less: municipal tax Net annual value Less: deductions under sec 24 Standard deduction i.e. 30% of NAV Income from Property 130000 140000 140000 134000 134000 NA 134000 26000 108000 32400 75600 130000 140000 140000 134000 134000 192000 192000 30000 162000 48600 113400
Arrears of rent of 2007-08 paid on May 1 st 2008. Gross annual value if Rs 16000 rent = Rs 192000 Less: Gross annual considered = Rs 134000 Arrears of rent = Rs 58000 Less: standard deduction 30% = Rs 17400 Amount taxable = Rs 40600 Income from house property : Assessment year 2008-09 = Rs 75600 Assessment year 2009-10 = Rs 154000
Exercise 16(including other income) Mrs. X ( age 22 years ) has occupied two houses for her residential purposes, particulars of which are as follows: Business income of Mrs. X is 386000. Besides Mrs. X is employed by a Pvt ltd company on monthly salary of Rs 12500. Every year she contributes Rs 50000 towards public provident fund. Determine the taxable income and tax liability of Mrs. X for the assessment year 2008-09. House I Rs House II Rs Municipal value 30000 90000 Fair rent 28000 95000 Standard rent under rent control act 20000 80000 Municipal taxes paid 3000 9000 Interest on borrowed capital 400 1200 Repairs Nil 100
Since Mrs. X has occupied two houses for her residential purpose, one house( according to the choice of Mrs. X ) will be treated as self- occupied property. (NET ANNUAL VALUE = NIL)
The other house will be treated as “deemed to be let out” property.
The assessee can choose any one of the houses any year.
Let us choose House II as self occupied property, House I will be treated as “deemed to be let out” property. CONT…. House I House II Municipal valuation 30000 - Fair rent 28000 - Whichever is higher 30000 - Standard rent 20000 - Whichever is lower 20000 - GROSS ANNUAL VALUE 20000 - Less: Municipal taxes paid 3000 - NET ANNUAL VALUE 17000 NIL Less: Deductions under Sec 24 (a) Standard deduction ( 30% of net annual value) 5100 - (b) Interest on borrowed capital 400 1200 INCOME FROM HOUSE PROPERTY 11500 (1200)
Net income from house property: HOUSE I = Rs. 11500 HOUSE II = Rs. (1200) NET INCOME = Rs. 10300 Computation of Taxable income : Income from House property = Rs. 10300 Income from Salary = Rs. 150000 Income from business = Rs. 386000 = Rs. 546300 Less: Deductions under sec 80C Public provident fund =Rs. 50000 TAXABLE INCOME =Rs. 496300 CONT……
X borrows from a relative Rs 10,000 @ 12 % for construction of house I (date of borrowing June 1 2004, date of repayment of loan May 31 2007) Construction of all the houses is completed in August 2006 determine the taxable income and tax liability of X for the assessment year 08 -09 on the assumption that X contributes Rs 10,000 towards statutory provident fund Rs 2,000 towards National Relief bonds Exercise 17(borrowed from relative and three houses) X 36 years a salaried employee drawing Rs 22000 per monthly salary has occupied three houses for his residential purposes Particulars House I House II House III Standard rent under Poona Rent Control Act 33000 55000 40000 Municipal valuation 40,000 60,000 40,000 Fair rent 43,000 58,000 48,000 Municipal taxes paid 3,000 6,000 4,000 Repairs NIL NIL NIL Ground rent due but outstanding Insurance premium due but outstanding 200 300 ---------------- 400 300 500
** June 1 04 to March 31 06---22 months pre construction period
10,000 * 22/12*12/100 = 2200 (spread over first 5 years)
2200/5 = 440
If you want to take rest from studies………cook. If you want to take Rest from cooking clean your room, if you want to take rest from Cleaning your room …….study. Alternative work is rest.
Exercise 18 (many houses)Mr.X is 31 years, owns four houses outside the jurisdiction of the rent contract act House IV remains vacant for the month of Jan 2008.business income of X for the previous year 07-08 is Rs 2,80,000(it has been computed as per the provisions of income tax act) determine the taxable income & tax liability of X for the assessment year 08-09 on the assumption that he could not occupy house III for 2 months during the previous year and X pays insurance premium of Rs 65,000 on his insurance policy op Rs 3,70,000 . Particulars House I self House II self House III business House IV let out Municipal valuation 40,000 6,000 16,000 60,000 Fair rent 50,000 8,000 22,000 55,000 Rent if let ------- ------ ------- 72,000 Unrealized rent 3,000 Municipal tax paid by X 4,000 500 1,000 6,000 Date of completion of construction June 16 1991 June 5 1974 June 14 1997 March 31 1998 Repairs nil 2,000 500 Nil Collection charges ----- ----- ---- 300 Land revenue 200 --- 100 500 Int on capital borrowed covered 1000 200 400 600 Int on capital borrowed for payment of municipal taxes 300 -- 200 600 Int on capital borrowed for construction 3700 --- --- ---
Particulars House 1 SO House 2 Business House 3 Deemed House 4 Deemed
Exercise 19(full-fledged problem) : Mrs. X age 51 years submits the following particulars of her income relevant for the previous year ending march 31 2008 business income: Profit Of Biz A Rs 1,33,400 Loss Of Biz B Rs 18,000 Loss Of Biz C Rs 8,540 A residential house property: municipal valuation : Rs 48,000, fair rent : Rs 52,000 , standard rent : Rs 65,000 municipal taxes paid Rs 6,000, repairs : Rs 200, interest on capital borrowed for purpose of construction of house property (amt borrowed : Rs 20,000,ratye of interest 18 % date of borrowing June 30 1996, date of repayment of loan June 20 2007, date of completion of construction June 30 2001) and annual charges mot created by Mrs. X Rs 500 besides on May 24 2005, Mrs. X borrows Rs 1,95,000 @ 12% PA for the purpose of reconstruction of house property. The house is self occupied from April 1 2007 to March 15 2008 from march 16 2008 it is let out on monthly rent of Rs 4,000.during the previous year, Mrs. X is employed by a company on monthly salary of Rs 19,000.Determine the taxable income and tax liability of Mrs. X for the assessment year 08-09 , she contributes Rs 2,000 towards Indira Vikas Patra.
Exercise 20 : X 50 yrs owns a big house (erection completed on March 1 2003). The house has 3 independent residential units . Unit 1 ( 50 % of the floor area) is let out for residential purposes on monthly rent of Rs 8,000( this unit is however used by X from Jan 15 2008 to March 15 2008for his residential purposes) . A sum of Rs 1,000 could not be collected from the tenant. Unit 2 ( 25 % of the floor area) is used by X for the purposes of his residential while Unit 3 the remaining 25 % is used by him for the purposes of his business . Other particulars of house are : municipal valuation: Rs 1,92,000;municipal taxes paid Rs 16,000; repairs Rs 4,000;ground rent : Rs 6,000; land revenue paid : Rs 1,800; insurance paid : Rs 6,000, and Interest on capital borrowed for payment of municipal tax : Rs 4,000, Income of X from Biz is Rs 1,61,200 ( without debiting house rent and other incidental expenditure including admissible depreciation of Rs 600 on the ¼ portion of house used for Biz . Determine the taxable income and tax liability of X for the assessment year 08-09. X contributes Rs 8,000 towards home loan account of the National Housing Bank .
Interest on loan repayment for entire house is 36,000 as per act if it is for repairs or renewals it is limited to 30,000. nut in this case 50% portion interest of house which is 18,000 which means full 18,000 is allowed ** interest on loan borrowed for self occupied property is limited to 30,000 or 15,000. but for repairs and renewals is 30,000
Total income Amount Unit 1 Unit 2 Unit 3 Total income Deduction 80 C Taxable income Tax amount: Rs 15,400 61,600 --- 1,51,150 ------------ 2,12,750 8000 ------------ 2,04,750 ------------
For the assessment year 2008-09,X (age: 46 years) submits the following information:
Income from business Rs 144220
Income on debentures Rs 205000
Contribution to public provident fund Rs 70000
Investment in bonds of infrastructure company Rs 40000
House I House II Fair rent 12900 39700 Municipal value 13000 40000 Annual rent 48000 54000 Municipal taxes paid 1700 4000 Standard rent 12500 60000 Repairs 200 18000 Land revenue 2000 16000 Insurance 500 1500 Unrealized rent of 2006-07 3000 2000 Unrealized rent of 2007-08 1000 35000 Interest on capital borrowed for purchase of house property 1000 14000 Repayment of loan taken from a friend for purchasing house I 3640 ---- Vacant period (number of months) 1 3 Loss on account of vacancy 4000 13500 Actual rent received or receivable 43000 5500 Nature of occupation Let put for residence of managing director of A Ltd Let out for profession Date of completion of construction March 31 st 2003 May 15 th 1974
Determine the taxable income and tax liability of X for the assessment year 2008-09. also calculate the amount of unrealized rent which can be claimed as deduction in the assessment year 2009-10
NET ANNUAL VALUE: less: deduction under section 24 Standard deduction of 30% of Net Annual value Interest on capital borrowed INCOME FROM HOUSE PROPERTY: 41300 12390 1000___ 27910 22500 6750 14000 1750
CALCULATION OF ANNUAL RENT Annual rent Less: unrealized rent Less: loss due to vacancy Actual rent received _______________________ For house 2 the income from house property is Rs.26500 (i.e., 40000 – 13500) House1 48000 1000 47000 4000 43000 House2 54000 35000 19000 ( not considered)
Computation of taxable income Income from business Interest on debentures Income from house property GROSS INCOME: Less: deduction under section 80C Contribution to provident fund-70000 Investment in national bond - 40000 110000 *Note: the maximum amount deductable under this sec is Rs. 100000 NET INCOME: 144200 205000 29660 378880 100000 278880
Computation Of Tax Liability NET INCOME Less: exemption limit Taxable amount 40000*10% 100000*20% 28880*30% Add: 3% educational cess Tax payable Rounding off 278880 110000 168880 4000 20000 8664 32664 979 33643 33640
Exercise 22(composite rent,unrealised rent,recovery of unrealised rent)
X (age : 28 years) is owner of a house property in Mumbai which is let out for Rs.72000 (which includes Rs.8400 for maintenance of lift and garden), municipal valuation : Rs.60000 ; fair rent : Rs.62000 : Standard rent : Rs.61600 : rent of ½ month could not be collected ( 1/24 of Rs. 72000) : Rs.3000 . The local taxes, payable by the owner, amounts to Rs.6000 but the tenant has undertaken to pay it. The tenant has also undertaken to bear cost of repairs. However, X bears the following expenditure during the previous year 2007-08 :
Assuming that business income is Rs. 346000 determine the income ( and tax thereon) for the assessment year 2008-09. The construction of the house was completed on March 31, 2001. During the previous year 2001-02, X had claimed and allowed a deduction of unrealised rent of Rs. 10000. On March 10,2008, X recovers Rs. 9000 from the defaulting tenant (legal expenditure on recovery of rent : Rs.9500). X contributes Rs.60000 towards National Saving certificate VIII Issue on April 1,2008.
Solution 22:computation of income from house property Municipal value( a) Fair rent (b) Standard rent (c) Actual rent (d) If (d) is more than the previous step then (d) should be considered Gross annual value Less: municipal tax paid Net annual value Less: deduction under sec 24 Standard deduction of 30% of net annual value Interest on capital 60000 62000 61600 60950 61600 -- 61600 18480 1350
Income from house property Add: rent received chargeable under section 25 A Income under the head ‘income from house property 41770 9000 50770
Computation of taxable income Business income Income from house property Income from other sources: Amount collected from tenants for providing amenities (8400*11.5/12)-8050 Less: expenses(7600+1100) - 8700 Gross taxable income Less: deduction under section 80C Net income: 346000 50770 396770 -650 396120 -___ 396120
Computation of tax liability Total income Less: exemption limit 40000*10% 100000*20% 146120*30% Add: 3% educational cess Tax payable Rounding off 396120 110000 286120 4000 20000 43836 67836 2035 69871 69870
Exercise 23( borrowing at different dates)
X (age 32 years) owns four houses which are used by him for his residential purposes:
Find out the net income and tax liability of X for the assessment year 2008-09 on the assumption that income of X from other sources is Rs 520000 and he deposits Rs 100000 in notified pension fund of National Housing Bank. House I House II House III House IV Municipal value 40000 170000 25000 90000 Fair rent 50000 160000 26000 97000 Standard rent 60000 174000 20000 96000 Municipal taxes paid by X 8000 26000 4000 22000 Interest on capital borrowed for purchase/construction (inclusive of 1/5 th of pre-construction period’s interest, wherever applicable) (capital was borrowed on 1 st April 1999 in the case of House III and IV. In the case of House I and II capital was borrowed on April 10 th 1998) 25000 35000 84000 156000
Discuss whether the following are true or false:
In the example given under 23, if the tax payer’s other income is Rs 164000, then income chargeable to tax is Rs 129000.
If net annual value is negative, standard deduction is not available.
If net annual value is negative, interest on borrowed capital is not deductible.
In case of one self occupied residential property, net annual value cannot be negative.
In case of one self occupied residential property, income from property cannot be positive.
In case of partly self occupied and partly let out property, income maybe positive or negative.
Computation of income under different options house1 house2 House3 house4 If self occupied , NAV= less: interest on capital Income from house property Nil 25000 _____ - 25000 Nil 30000 _____ - 30000 Nil 84000 _____ - 84000 Nil 150000 ______ - 150000 If deemed let-out Municipal value (a) Fair rent (b) Standard rent (c) 40000 50000 60000 170000 160000 174000 25000 26000 20000 90000 97000 96000
House1 House2 House3 House4 Expected rent (a) or (b) subject to a maximum of (c) GAV Less: municipal taxes paid NAV Less: deductions under section 24 Standard deduction Interest on capital 50000 50000 8000 _______ 42000 12600 25000 4400 170000 170000 26000 _______ 144000 43200 35000 65800 20000 20000 4000 _______ 16000 4800 84000 - 72800 96000 96000 22000 _______ 74000 22200 156000 - 104200
Mr. X has the following options particulars (IHP) Option 1 (house 1 is self occupied) Option 2 (house 2 is self occupied) Option 3 (house 3 is self occupied) Option 4 (house 4 is self occupied) House 1 House 2 House 3 House 4 Income from house property Income from business GROSS INCOME: Less: deduction under sec 80 C -25000 65800 -72800 - 104200 -136200 520000 383800 100000 4400 -30000 -72800 - 104200 -202600 520000 317400 100000 4400 65800 -84000 104200 -118000 520000 402000 100000 4400 65800 -72800 - 150000 152600 520000 367400 100000
Mr. X should take option 2 as net income taxable is lower when compared to other options
therefore taxable income is Rs. 217400
Notified fund Net income taxable under different option available 100000 283800 100000 217400 100000 302000 100000 267400
Calculation of tax liability Net income Less : exemption limit 40000*10% 67400*20% +-add: 3% educational cess Tax payable 217400 110000 107400 4000 13480 17480 524.4 18004.4 18000
Exercise 24:(self occupied partly, let out partly) Mrs. X (age : 51 yrs) own s two houses. Relevant details are given below : Particulars House 1 House 2 Let out Self-occupied Municipal value per annum (a) Fair rent (b) Standard rent (c) Rent of let out property (d) Interest on borrowed capital Municipal tax paid April 1,2007 to June 30, 2007(rent being Rs.25000 per month) July 1,2007 to March 31, 2008 60000 70000 66000 75000 2000 10000 July 1, 2007 to march 31, 2008 (rent being Rs. 10000 per month) April 1,2007 to June 30,2007 100000 95000 110000 90000 40000 17000
Computation of taxable income and tax liability Income from house property Income from business Gross total income Less: deductions under section 80C Contribution to public provident fund Net taxable income TAX LIABILITY: Taxable income Less : exemption limit 5000*10% 100000*20% 941600*30% 61600 1200000 1261600 70000 1191600 1191600 145000 1046600 500 20000 282480 302980
Add: surcharge of 10% as income exceeds 1000000 Add: 3% educational cess Tax payable Rounding off 30298 333278 9998 343276 343280
Exercise : 25
Net annual value of house property owned by X = nil
Income of Y is related to income from business and profession. Therefore NAV = nil
Z has let out his property and income from house property should be calculated.
Calculation of income from house property particulars X Z Gross annual value Less: municipal taxes paid Net annual value Less: deductions under section 24 Standard deduction of 30% of NAV Interest on capital borrowed Income from house property Nil Nil Nil Nil 30000 -30000 120000 20000 100000 30000 30000 40000
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