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Income from house property
1. BON SECOURS COLLEGE FOR WOMEN
THANJAVUR
By
Dr.E.Ramapraba,
Assistant professor of Commerce,
Bon Secours College for Women,
Thanjavur.
2. INCOME FROM HOUSE PROPERTY
SYNOPSIS :
1. INTRODUCTION
2. BASIS OF CHARGE
3. DETERMINATION OF ANNUALVALUE
* GROSS ANNUALVALUE
* NET ANNUALVALUE
4. DEDUCTION U/S 24
5. INTEREST ON BORROWED CAPITAL
6. INCOME FROM HOUSE PROPERTY
3. INCOME FROM HOUSE PROPERTY
DEFINITION :
Section 22 of the Income TaxAct 1961, deals with house property income.
Income from ;
Houses
Buildings
Bungalows
Godowns
are taxed under the head.
MEANING :
Income from house property is the one of the five heads of income under
which income arising from a house property is liable to tax under the Income
TaxAct 1961.
A house property consists of any building or land attachment there to,
which is owned by the tax payer.
4. BASIS OF CHARGE(SECTION 22) :
The house property should consists of any building or land
appurtenant there to;
The tax payer should be the owner of the property.
The house property should not be used for the purpose of
business or profession carried on by the tax payer.
5. DETERMINATION OF ANNUAL VALUE :
MEANING OF ANNUAL VALUE :
The annual value of house property is defined as,
”The sum for which the property might reasonably be expected
to be let from year to year”.
DETERMINATION OF ANNUAL VALUE:
Section 23 deals with calculations of annual value
It is calculated by taking into consideration of various aspects like
Municipal valuation(MRV)
Fair rental value(FRV)
Standard Rent(SR)
Actual Rent(AR)
Period of vacancy(V)
Unrealised Rent(URR)
6. MUNICIPAL RENTAL VALUE(MRV) :
It refers to the value fixed by the municipal or local authority.
In order to levy local taxes, the municipal corporation/
committee, conducts a periodical survey of the house properties
in their local limits.
Thus, the rental values so fixed is called Municipal Rental Value
(MRV).
7. FAIR RENTAL VALUE(FRV) :
Fair rental value refers to the rent to which a similar
property which fetch at a same.
It is based on the presumption that rent prevailing in same
locality for similar properties is almost the same which is
called Fair Rental Value(FRV).
8. STANDARD RENT(SR) :
o It refers to the rent fixed by Rent ControlAct.
o The rent fixed under the Rent Control Act, where so ever
applicable, is called Standard Rent(SR).
o It is a maximum rent an owner on client from his tenant.
9. ACTUAL RENT(AR) :
Actual Rent is refers to the rent for which a property
has been actually let out by the owner.
SPECIMEN FOR ORIGINAL ACTUAL RENT :
PARTICULARS AMOUNT AMOUNT
Given AR xxx
Less:
vacancy
Unrealized Rent
xxx
xxx xxx
Original Actual Rent xxx
10. PERIOD OF VACANCY :
Vacancy refers to the period for which the property is not
occupied by anyone.
Vacancy should be deducted from actual rent while
calculating Gross Annual value(GAV).
UNREALIZED RENT(URR) :
It refers to the rent, which has not been realised by the owner
from the tenant.
Unrealised rent should be deducted from actual rent while
calculating Gross Annual Value(GAV).
11. GROSS ANNUAL VALUE :
Gross Annual Value is the income that can be earned from the
property whether it is let out or not on a yearly basis.
It refers to the value which is calculated after considering the following;
Expected Rent(ER)
Actual Rent(AR).
CALCULATION OF GROSS ANNUAL VALUE :
GROSS ANNUAL VALUE
If noAR If we haveAR
12. GROSS ANNUAL VALUE :
1.IF NO AR (ACTUAL RENT) :
Municipal Rental Value
Fair Rental Value
xxx
xxx
Whichever is higher
Standard Rent xxx
Whichever is lower
Therefore,
EXPECTED RENT xxx
Expected Rent xxx
GAV = ER
13. 2.WHEN THERE IS AR (IF AR GIVEN) :
We must follow two conditions,
When AR>ER
WhenAR<ER
1. If vacancy is given, ER-V
AR-V
2.If vacancy and URR is given
3.If URR is given
GAV =AR
Whichever is higher =GAV
ER – V = GAV
ER = GAV
14. NET ANNUAL VALUE (NAV) :
MEANING :
It is the amount after deducting municipal tax or local tax paid
by the owner from the Gross AnnualValue.
SPECIMEN FOR NET ANNUAL VALUE :
PARTICULARS AMOUNT AMOUNT
Gross Annual Value
Less :
Municipal tax paid by owner
Net Annual Value
xxx
xxx
xxx
15. COMPUTATION OF INCOME FROM HOUSE
PROPERTY :
SELF OCCUPIED HOUSE :
Self occupied house refers to the house, which has been
occupied by the owner himself.
He can occupy more than one house.
LET OUT HOUSE :
This means the property which has been let out by an assessee
for monetary consideration that is , rent.
The rent received shall be treated as ‘Income from
house property’.
DEEMED TO BE LET OUT HOUSE:
All vacant properties are treated as ‘ Deemed to
be let out house’.
16. STANDARD DEDUCTION :
U/S 24 (a) 30% of Net Annual Value is deductible
as a statutory deduction .
INTEREST ON BORROWED CAPITAL :
Interest on borrowed capital for acquisition, construction, repairs,
renewals or reconstruction is allowed .
PRE-CONSTRUCTION :
Interest paid in pre-construction period is deductible in five equal
installments from the year of completion of construction or acquisition
of property.
17. NOTES FOR INTEREST ON BORROWED CAPITAL :
For Let out houses and Deemed to be Let out houses,
1. Calculate interest as per the details given in the problems
2. There is no limitation for such deduction.
For Self occupied houses
1. Calculate interest as per the details given in the problems.
2. There is limitation for this type of houses.
3. It is allowed to a maximum of Rs.30,000.
4. Actual Interest or Rs.30,000, whichever is less, as the case
may be is allowed as deduction.
18. PARTICULARS AMOUNT
Current previous year interest
(2018-2019)
Add :
1/5th of pre-completion interest
Total interest to be considered
xxx
xxx
xxx
CALCULATION OF PRE-COMPLETION INTEREST :
19. While calculating pre-completion interest the following concepts should be considered
1.Date of Loan(DOL)
2.Date of Repayment(DOR)
3.Date of Completion(DOC)
Always consider Date of Loan and take Date of Repayment or Date of Completion
Whichever is earlier to calculate interest.
DOL DOR
or
DOC Whichever is earlier xxx
When DOR is considered, the actual date of repayment should be taken.
When DOC is considered, the 31st March immediately preceding the date of
completion should be taken.
STEPS FOR PRE-COMPLETION INTEREST :
20. OVERALL CHART FOR CALCULATION OF INCOME FROM HOUSE
PROPERTY :
PARTICULARS AMOUNT
Gross Annual Value
Less :
Municipal Tax or Local
tax paid by owner
Net Annual Value
Deduction U/S 24;
1.Standard Deduction-
30% of Net Annual Value
2.Interest on borrowed
capital-paid or due
Income from House
property
xxx
xxx
xxx
xxx
xxx
xxx
xxx
AMOUNT