Basis of ChargeThe basis of charge of incomeunder the head „income fromhouse property‟ is the AnnualValue of the property. AnnualValue is inherent capacity of theproperty to earn an income. It isthe amount for which the propertymight reasonably be expected tolet from year to year.Income from house property ischarged to tax on NotionalBasis, as generally tax is not onreceipt of income but on theinherent potential of the houseproperty to generate income.
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.4/3/2013 3
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)] XXX4/3/2013 4
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 Rent4/3/2013 5
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 Paid4/3/2013 6
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.4/3/2013 7
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 54GA4/3/2013 9
Capital Assets“Capital asset” is defined to include property of any kind, whether fixed orcirculating, movable or immovable, tangible or intangible. However, following areexcluded from the definition of “capital assets”:Any stock-in-trade, consumable stores or raw material held for the purposes ofbusiness or profession.Personal effects of the assessee, that is to say, movable property includingwearing apparel and furniture held for his personal use or for the use of anymember of his family dependent upon him. However, Jewellery,ArchaeologicalCollections, Drawings,Paintings, Sculptures, or Art Work will not be considered as“personal effects”.4/3/2013 10
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 bonds4/3/2013 11
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.4/3/2013 13
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.4/3/2013 14
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.4/3/2013 15
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.4/3/2013 16
Income From Other SourcesSection 56 to 59 of Income Tax Act, 1961 deal with this.Acc to Section 56(1), income of every kind which is includible in totalincome under this Act, but which is not chargeable to income-tax underany of four head, shall be chargeable to income-tax under this head.Thus any income which satisfies the following two conditions will be taxedunder 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.
INTEREST ON SECURITIESWINNING FROM LOTTORIES,CROSSWORD PUZZLES, RACES ANDCARD 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.
4. CONTRIBUTION RECEIVED FROM EMPLOYEESAcc to section 2(24)(x), if an assesses receives any of following amounts from his employees, he ischargeable to tax:-a. Contribution to an provident fundb. Contribution to superannuation fundc. Contribution to any fund set up under Employees’ State Insurance Act, 1948d. 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
7. RECEIPT WITHOUT COONSIDERATION As per section 56 (2) (vi), if any sum of money exceeds Rs. 50,000 is received without anyconsideration 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 relativeb. Any sum of money received on occasion of marriage of individualc. Any sum of money received under a will or inheritanced. Any sum of money received in contemplation of death of payere. 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 PATRA9. INTEREST ON INDIRA VIKAS PATRA10. INTEREST ON NATIONAL SAVINGS CERTIFICATES11. INTEREST ON SOCIAL SECURITY CERTIFICATE
Besides these income, the following income are also chargeable to income-taxunder ‘Income from other sources’:-1) Agricultural income received from outside India2) Interest on securities of foreign Government or authority3) Salaries due to a member of Parliament4) Compensation received for use of business assets5) 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 property7) Royalties or rent of mines received or receivable by owner of a coal mine8) Income from fisheries9) Amount received for loss of income from land10) Interest other than interest on securities such as int. on loan, on bank deposit and on provident fund etc11) Int. on employee’s contribution to unrecognized provident fund12) Gratuity received by director, who is not employee of company13) 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 Indiab. 50% of income received for matches played outside Indiac. 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 period15) Director’s fee or salary to a director employee16) Rent received from leasing out the trademark17) Income from buster lands18) Income from units of Unit Trust of India