TAXATION OF HOUSE PROPERTY
If you own a property which is a building, plot or land attached to the building, then any rental income from such property will be chargeable to tax under the head 'Income from House Property.
What all is included in House Property?
What is not included in House Property?
Income from House Property will be taxable if the following conditions get satisfied:
First of all, we need to understand some terminologies which are associated with Income from House Property
Annual value: This is the actual rent received or to be received by the property owner on renting out the house.
Municipal value: This is the value on house property as calculated by the municipal authorities for imposing municipal taxes.
Fair rent value: Fair rental value is the rent which a similar property with similar features in the same locality would fetch.
Standard rent: The standard rent is determined under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control Act, the property owner cannot charge a rent higher than the standard fixed rent.
Determination of Annual value (Section 23)
Gross Annual Value – Municipal taxes = Net Annual Value
1.Where the property is let out throughout the previous year [Section 23(1)(a)/(b)]
Where the property is let out for the whole year, then the GAV would be higher of the –
(a) Expected Rent (ER) and
(b) Actual rent received or receivable during the year
Note:
2. Where let out property is vacant for part of the year, loss due to the vacancy is deductible from the higher of Expected Rent and actual rent received or receivable and the remaining amount will be the GAV of the property.
3.In the case of self-occupied property or unoccupied property [Section 23(2)]
a. If the property is self-occupied for own residence or was unoccupied throughout the previous year, its Annual Value will be Nil, as no benefit is derived by the owner from such property.
The expression “Unoccupied property” refers to a property which cannot be occupied by the owner by the reason of his employment, business or profession at a different place and he/she resides at such other place in a building that does not belong to him/her.
b.The benefit of exemption of two self-occupied house is available only to an individual/HUF.
c. No deduction for municipal taxes is allowed in respect with such property.
4.Where a house property is let-out part of the year and self-occupied for part of the year [Section 23(3)]
a.If a single unit of a property is self-occupied for part of the year and let-out for the remaining part of the year, then the ER for the whole year shall be taken into account for determining the GAV.
b.The ER for the whole year shall be compared with the actual rent for the let-out period and whichever is higher shall be adopted as the GAV.
c. However, municipal tax for the whole year is allowed as a deduction, provided it is paid by the owner during the year.
5.In case of deemed to be let-out property [Section 23(4)]
a. Where the assessee owns more than one Residential property for self-occupation, then the income from any two properties, at the option of the assessee, shall be computed under the self-occupied property category and its annual value will be nil.
b.The other self-occupied/unoccupied properties shall be treated as “deemed let out properties”.
c. This option can be changed year after year in a manner beneficial to the assessee.
d. In case of a deemed let-out property, the ER shall be taken as the GAV.
e. The question of considering actual rent received/receivable does not arise. Consequently, no adjustment is necessary on account of the property remaining vacant or unrealized rent.
f.Municipal taxes actually paid by the owner during the year can be claimed as a deduction.
6.In case of House Property Held as stock-in-trade [Section 23(5)]
a.In some cases, property consisting of any building or land held as stock-in-trade, and the whole or any part of the property may not be let out during the whole or any part of the previous year.
b.In such cases, the annual value of such property or part of the property shall be NIL.
c.This benefit would be available for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.
7. In case of a House Property, a portion let-out and a portion self-occupied [Section 23(5)]
a. Income from any portion or part of a property which is let out shall be computed separately under the “let out property” category and the other portion or part which is self-occupied shall be computed under the “self-occupied property” category.
b.There is no need to treat the whole property as a single unit for the computation of income from house property.
c.Municipal valuation or fair rent or standard rent, if not given separately, shall be apportioned between the let-out portion and self-occupied portion either on plinth area or built-up floor space or on such other reasonable basis.
d.Property taxes, if given on a consolidated basis can be bifurcated as attributable to each portion or floor or on a reasonable basis.
Unrealized Rent-
Municipal Taxes-
Deductions from House Property (Section 24)
There are two deductions from annual value. They are –
a.30% of NAV; and
b.Interest on borrowed capital
Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction of house property can be claimed as deduction.
Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.
Interest for Pre-construction period:
Pre-construction period is the period prior to the previous year in which property is acquired or construction is completed.
Pre-construction interest can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.
Deduction in respect of self-occupied house property where annual value is nil:
SL.NO | CONDITIONS | AMOUNT OF DEDUCTION |
(A) |
Loan borrowed before 1.4.99: Actual interest payable subject to a maximum of Rs. 30,000. |
Actual interest payable subject to a maximum of Rs. 30,000. |
(B) |
Loan borrowed on or after 1.4.99: (i) Where the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed. (ii) Where the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is not completed within 5 years from the end of the financial year in which the capital was borrowed. (iii) Where the property is repaired, renewed or reconstructed with capital borrowed on or after 1.4.99. |
Actual interest payable subject to a maximum of Rs. 2,00,000 Actual interest payable subject to a maximum of Rs. 30,000. Actual interest payable subject to a maximum of Rs. 30,000. |
Inadmissible Deductions (Section 25)
Interest which is payable outside India, shall not be deducted if-
a.The tax has not been paid or deducted from such interest, and
b.In respect of which there is no person in India who may be treated as agent.
Provisions for Arrears of rent and unrealized rent Received Subsequently (Section 25A)
Treatment of Income from Co-owned property (Section 26)
Deemed ownership (Section 27)
Exception– In case of transfer to a spouse in connection with an agreement to live apart, the transferor will not be deemed to be the owner. The transferee will be the owner of the house property.
Exception– In case of transfer to a minor married daughter, the transferor is not deemed to be the owner.
Exception – In case the person acquiring any rights by way of lease from month to month or for a period not exceeding one year, such person will not be deemed to be the owner.
Cases Where House Property income exempt from Tax:
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