2. Basis of Charge
The basis of charge of income
under the head „income from
house property‟ is the Annual
Value of the property. Annual
Value is inherent capacity of the
property to earn an income. It is
the amount for which the property
might reasonably be expected to
let from year to year.
Income from house property is
charged to tax on Notional
Basis, as generally tax is not on
receipt of income but on the
inherent potential of the house
property to generate income.
3. Conditions to be Satisfied
The property must consist of buildings or lands
appurtenant to such buildings.
The assessee must be the owner of such house
property.
The property should not be used by the owner thereof
for the purpose of any business or profession carried
on by him, the profits of which are chargeable to tax.
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4. Computation of Gross Annual
Value (GAV)
Step 1 : Calculate Expected Rent as follows:-
Particulars Amount Amount
(a) Fair Rent of the House xxx
(b) Municipal Value of House xxx
(c) Whichever is more of (a) and (b) XXX
(d) Standard Rent xxx
Expected Rent [whichever is less of (c) and (d)] XXX
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5. Contd…
Step 2 : Compare Expected Rent & Actual Rent
Receivable (ARR).
Where the property or any part thereof is let out,
If ARR is more than ER referred to in Step 1, then,
GAV = ARR
If ARR is less than ER and it is due the vacancy of
property then, GAV = ARR
If ARR is less than ER not owing to vacancy GAV =
ER
Note: ARR = Rent Received / Receivable
less Unrealized Rent
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6. Net Annual Value (NAV)
Net Annual Value is the sum computed
after deducting from Gross Annual Value,
the taxes levied by any local authority in
respect of the property.
NAV = GAV – Municipal Taxes Paid
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7. Meaning
Municipal Valuation :- For collecting municipal taxes, local
authorities make a periodical survey of all building in their
jurisdiction. Such valuation may be taken as strong
evidence representing the earning capacity of a building.
Fair Rent of the Property :- Fair rent of the property can be
determined on the basis of a rent fetched by a similar
property in the same or similar locality.
Standard Rent :- Standard rent is the maximum rent
which a person can legally recover from his tenant under a
Rent Control Act.
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9. Basis of Charge
Capital Gain‟s tax liability arises only when the following conditions are
satisfied
There should be a capital asset.
The capital asset is transferred by the assessee
Such transfer takes place during the previous year.
Any profit or gains arises as a result of transfer.
Such profit or gains is not exempt from tax under
section 54, 54B, 54D, 54EC, 54F, 54G, and 54GA
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10. Capital Assets
“Capital asset” is defined to include property of any kind, whether fixed or
circulating, movable or immovable, tangible or intangible. However, following are
excluded from the definition of “capital assets”:
Any stock-in-trade, consumable stores or raw material held for the purposes of
business or profession.
Personal effects of the assessee, that is to say, movable property including
wearing apparel and furniture held for his personal use or for the use of any
member of his family dependent upon him. However, Jewellery,Archaeological
Collections, Drawings,Paintings, Sculptures, or Art Work will not be considered as
“personal effects”.
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11. Short-term / Long-term
Capital Assets
“Short term capital asset” means a capital asset held by an assessee for not more than 36
months, immediately prior to its date of transfer. In other words, if a capital asset is held by
an assessee for more than 36 months, then it is known as “long term capital asset.”
However in following cases 36 months will be replaced by 12 months :-
Equity or preference shares in a company Listed Securities
Units of UTI
Units of a mutual fund specified under section 10(23D)
Zero coupon bonds
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13. Important Terms
1. Transfer of Capital Asset :- Transfer, in relation
to capital asset, includes sale, exchange or
relinquishment of the asset or the
extinguishment of any rights therein or the
compulsory acquisition thereof under any law
[sec. 2(47)].
2. Full Value of Consideration :- The expression “full
value” means the whole price without any
deduction whatsoever.
3. Expenditure on Transfer :- The expression
“expenditure on transfer” means expenditure
incurred which is necessary to effect the transfer.
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14. Contd…
4. Cost of Acquisition :- Cost of acquisition of
an asset is the value for which it was
acquired by the assessee. In case of
Depreciable Asset COA is the WDV of asset in
the beginning of the year. In case of Slump
Sale COA is the Net Worth of the
undertaking.
5. Cost of improvement :- Cost of improvement
is capital expenditure incurred by an
assessee in making any
additions/ improvement to the
capital asset.
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15. Contd…
6. Indexed Cost of Acquisition :- the amount
which bears to the COA, the same proportion
as CII for the year in which the asset is
transferred bears to the CII for the first year in
which the asset was held by the assessee or on
01.04.1981, whichever is later.
7. Indexed Cost of Improvement :- an amount
which bears to the COI, the same proportion as
CII for the year in which the asset is
transferred bears to the CII for the year of
improvement.
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16. Capital Gain Exemption
1. Profit on sale of property used for residence [S.
54]:- Available to Individual & HUF on transfer
of Long-term Residential Property and new
residential House property is purchased or
constructed.
2. Capital gains on transfer of agricultural land
[S.54B]:- Available to Individual on transfer of
Agricultural land used by individual or his parent
for agricultural purposes during 2 year
preceding date of transfer and
Agricultural land (urban or rural) is
purchased.
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18. Income From Other Sources
Section 56 to 59 of Income Tax Act, 1961 deal with this.
Acc to Section 56(1), income of every kind which is includible in total
income under this Act, but which is not chargeable to income-tax under
any of four head, shall be chargeable to income-tax under this head.
Thus any income which satisfies the following two conditions will be taxed
under this head-
Income is chargeable to tax under this Act.
• Such income is not chargeable to tax under any of four heads i.e. Income from salaries, Income
from property, Profits and gains of business or profession, Income from capital gains.
19. INTEREST ON SECURITIES
WINNING FROM LOTTORIES,
CROSSWORD PUZZLES, RACES AND
CARD GAMES
Security is a documentary evidence of
Income by way of winning from lottery or loan, rate of interest, conditions for the
crossword puzzles or horse race or card game or any repayment of loan and time of repayment is
other game is subject to deduction of tax at 30% (plus specifically and clearly noted and which is
surcharge, education cess and secondary and higher
education cess).
signed by debtor himself or any other person
authorized on his behalf.
For resident or non-resident rate of TDS is 30.9%
(up to income 10.00.000) or 33.99% ( more than Share is not a security.
10,00,000).
For domestic company rate of TDS is 33.99%. Acc to sec 2 (28-B), interest on following
securities is chargeable to tax:-
For non-domestic company rate of TDS is
31.6725%.
a. Int on securities of Central or State Gov.
b. Int on debenture or other securities for
money issued by or on behalf of- a local
authority, a company or a corporation
established by Central, State or
provincial Act.
20. 4. CONTRIBUTION RECEIVED FROM EMPLOYEES
Acc to section 2(24)(x), if an assesses receives any of following amounts from his employees, he is
chargeable to tax:-
a. Contribution to an provident fund
b. Contribution to superannuation fund
c. Contribution to any fund set up under Employees’ State Insurance Act, 1948
d. Contribution to any other fund for welfare of employees.
5. INCOME FROM MACHINERY, PLANT OR FURNITURE LET ON HIRE
6. INCOME FROM COMPOSITE LETTING OF BUILDINGS, MACHINERY,
PLANT OR FURNITURE
23. 7. RECEIPT WITHOUT COONSIDERATION
As per section 56 (2) (vi), if any sum of money exceeds Rs. 50,000 is received without any
consideration by an individual or a HUF, in any previous year from any person or persons on or after April 1, 2006,
then the whole of such sum shall be taxable.
Exceptions-
a. Any sum of money received from any relative
b. Any sum of money received on occasion of marriage of individual
c. Any sum of money received under a will or inheritance
d. Any sum of money received in contemplation of death of payer
e. Any sum of money received from any fund or foundation of university or other educational institutions or hospital
or other medical institution.
f. Any sum of money received from any trust or institution.
8. INTEREST ON KISAN VIKAS PATRA
9. INTEREST ON INDIRA VIKAS PATRA
10. INTEREST ON NATIONAL SAVINGS CERTIFICATES
11. INTEREST ON SOCIAL SECURITY CERTIFICATE
24. Besides these income, the following income are also chargeable to income-tax
under ‘Income from other sources’:-
1) Agricultural income received from outside India
2) Interest on securities of foreign Government or authority
3) Salaries due to a member of Parliament
4) Compensation received for use of business assets
5) Any fee, commission, reward or other remuneration received by an employee from a person other than
his employer, e.g., examination remuneration received by teacher, tips received by a waiter etc.
6) Income from sub-letting of property
7) Royalties or rent of mines received or receivable by owner of a coal mine
8) Income from fisheries
9) Amount received for loss of income from land
10) Interest other than interest on securities such as int. on loan, on bank deposit and on provident fund etc
11) Int. on employee’s contribution to unrecognized provident fund
12) Gratuity received by director, who is not employee of company
13) Income of cricket players who have been selected to play for India. Following rules are applicable:-
a. 25% of income received from cricket Control Board of India for test matches played in India
b. 50% of income received for matches played outside India
c. Income from other matches played in India is tax-free if income is received from Cricket Control Board
of India.
14) Interest earned by a company on deposits during pre-production period
15) Director’s fee or salary to a director employee
16) Rent received from leasing out the trademark
17) Income from buster lands
18) Income from units of Unit Trust of India
