2. Basis of charge is Sec 22 Income is taxable under the head “ Income from House property” if the following three conditions are satisfied: a. Property should consist of any buildings or lands appurtenant thereto. b. Assessee should be owner of the property. c. Property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income tax
3. illustrations 1. X owns a building and it is given on rent. Income of the property is taxable under the head “ Income from house property” as all the three conditions are satisfied. Y owns a building and it is used by him for carrying on a business or he uses the building as his office/factory/godown. In this case, no income is taxable under the head “ Income from house property” as third condition is not satisfied.
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5. “Owner” includes a legal owner as well as deemed owner. “Owner” may be an individual, HUF, firm, company, society or AoP
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7. Mr.Y gifts Rs. 15 Lakhs to Mrs.Y and she purchases a house property out of the gifted money. In this case, Mr. Y will not be deemed as “owner” of the property because he has not transferred a house property. Consequently, income from property would be computed in the hands of Mrs.Y
8. Mr.Y gifts Rs. 15 Lakhs to Mrs.Y and she purchases a house property out of the gifted money. In this case, Mr. Y will not be deemed as “owner” of the property because he has not transferred a house property. Consequently, income from property would be computed in the hands of Mrs.Y 3. Rental income from a vacant plot is not chargeable to tax under the head “Income from house property” but is taxable under income from other sources.
9. In the following cases, rental income is not charged to tax Income from farm house Annual value of any one palace of an Ex-ruler Property income of c. a local authority. d. an approved scientific research association. e. an educational institution and hospital. a trade union. a charitable institution. a political party. one self occupied property.
10. Basis of computing income from a let out house property Gross Annual Value - XXXXXX Less : Municipal taxes - xxxxxx Net Annual value - xxxxxx Less : Deduction u/s 24 Standard Deduction - xxxxx Interest on borrowed capital - xxxxxx Income from House property - xxxxx
11. Gross Annual Value : Tax under the head “Income from house property” is not a tax upon rent of a property. It is tax on inherent capacity of a building to yield income. The standard selected as a measure of the income to be taxed is “ Gross Annual Value ”
12. Determination of Gross Annual Value : Step 1 : Find out reasonable expected rent of property. Step 2 : Find out rent actually received or receivable after excluding unrealised rent. Step 3 : Find out higher amount in Step -1 or Step-2. Step 4 : Find out loss because of vacancy. Step 5 : Step 3 minus Step 4 is Gross Annual Value
13. Step 1 : Reasonable expected rent of property The higher amount of Municipal valuation(MV) and Fair Rent of property (FR), subject to maximum of Standard Rent (SR) is reasonable expected rent of property.
15. Step 2 : Find out rent actually received or receivable after excluding unrealised rent. Rent of the previous year( or part of the previous year) for which the property is available for letting out - Rs.xxxxxx Less : Unrealised rent if a few conditions - Rs.xxxxxx are satisfied Rent received or receivable before - Rs.xxxxxx deducting loss due to vacancy
16. When unrealised rent shall be excluded : Unrealised rent( which the owner could not realise) shall be excluded only if the following conditions are satisfied. 1. The tenancy is bonafide. 2. The defaulting tenant has vacated or steps have been taken to compel him to vacate the property. 3. The defaulting tenant is not occupying any other property of the assessee. 4. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent
17. A, B, C, D , E separately own the following properties. Find out Gross annual value for AY 2010 – ’11 ( Amount in Rs. Thousands) ParticularsABCDE MV 105 105 105 105 105 FR 107 107 107 107 107 SR NA 88 88 135 135 Actual Rent 103 112 86 114 97 Unrealised Rent 1 2 1 2 1 (conditions are satisfied)
19. X,Y,Z separately own the following properties. Find out Gross annual value for AY 2010 – ’11 ( Amount in Rs. Thousands) ParticularsXYZ MV 95 60 60 FR 96 54 55 SR 94 78 79 Actual Rent 93 106 78 Unrealised Rent nil nilnil
20. Find out Gross annual value for AY 2011 – ’12 ( Amount in Rs.) ParticularsXY MV 61,000 61,000 FR 1,08,000 30,000 SR 60,000 60,000 Rent received From Tenant 1 (1.4.10 to 30.6.10 ) 5000 P.M 2000 P.M. From Tenant 2 (1.7.10 to 31.12.10) 9000 P.M. 2500 P.M, Period when the property Remains unoccupied 1.1.11 to 31.3.11 1.1.11 to 31.3.11 Actual rent receivable 96,000 28,500 Loss due to vacancy 27,000 7,500
21. Deduct Municipal taxes 1. From the Gross Annual Value computed, deduct municipal taxes(incl. Service taxes) levied by any local authority in respect of the house property. 2. Municipal taxes are deductible only if a) these taxes are borne by the owner and b) these are actually paid by the owner during the previous year
22. Deduction u/s 24 1. Standard Deduction 30 % of net annual value is deductible irrespective of any expenditure incurred by the tax payer. 2. Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. 3. Interest on borrowed capital is deductible fully without any maximum ceiling( in the case of a let out property)
23. Find out Income from property chargeable to tax for AY 2011 – ’12 in the following cases. ( Amount in Rs.) ParticularsHouse AHouse B MV 1,20,000 1,20,000 FR 1,30,000 1,30,000 SR 1,10,000 1,10,000 Actual Rent 1,26,000 1,26,000 Unrealised Rent 10,500 NIL Loss due to vacancy 10,500 NIL Municipal taxes Paid by owner (FY 2010-11) 18000 NIL Paid by owner (FY 2011-12) NIL 7000 Paid by tenants (FY 2010-11) NIL 9000 Interest on borrowed capital 25000 15000
24. How to compute taxable income from self occupied property Gross Annual Value Nil Less : Municipal Taxes Nil Net Annual Value Nil Less: Deduction u/s 24 Standard deduction Nil Interest on borrowed capital xxxxx Income from one self occupied property xxxxx
25. Interest on borrowed capital( self occupied property) 1. If the capital is borrowed on or after April 1,1999 for acquiring or constructing a property, interest on borrowed capital is deductible upto Rs. 1.5 Lakhs 2. If the capital is borrowed on or before April 1,1999, interest on borrowed capital is deductible upto Rs.30,000. 3. If the capital is borrowed on or after April 1, 1999 for reconstruction, repairs , interest on borrowed capital is deductible upto Rs.30,000
26. Mr. X owns a house property and it is used by him throughout the previous year 2010 – 11 for his residence. M.V = Rs.1,66,000 , F.R= Rs.1,76,000 S.R = Rs.1,50,000 Expenses : Repairs = Rs.20,000, M.Tax = Rs.16,000 Insurance = Rs.2000 Interest on borrowed capital to construct property = Rs.1,36,000 ( Capital borrowed on 25.7.2005) Income of Mr.X from business is Rs.7,10,000 Find out net income of Mr.X for AY 2011 – 12.
27. Computation of taxable income of Mr.X Gross Annual Value Nil Less : Municipal Taxes Nil Net Annual Value Nil Less: Deduction u/s 24 Standard deduction Nil Interest on borrowed capital (1,36,000) Income from one self occupied property (1,36,000) Income from Business 7,10,000 Total Net Income 5,74,000
28. WHEN A PROPERTY IS SELF OCCUPIED AND A PART IS LET OUT Mr. X owns a house property. It has two equal residential units – Unit 1 and Unit 2 Unit 1 is self occupied by Mr.X for residential purpose, Unit-2 is let out( Rent = Rs.6000 per month, rent of 2 months could not be recovered) M.V = Rs.1,30,000 , F.R= Rs.1,40,000 S.R = Rs.1,25,000 Municipal tax is imposed @ 12% which is paid by Mr.X. Other expenses for the previous year 2010 – 11 : Repairs = Rs.2500, Insurance = Rs.6000, Int. on borrowed capital for constructing the property = Rs.63000 ( borrowed during the year 1998) Income from other sources of Mr.X = Rs.500000 Find the income of Mr.X for AY 2011 - 12
