130827 46108 taxability of house property

Welcome to presentation on Taxability of House Property*Prepared by: CA. V.K. SAINI (9999772095)

Prepared by: CA. V.K. SAINI (9999772095)

*Prepared by: CA. V.K. SAINI (9999772095)


Income from House Property *Prepared by: CA. V.K. SAINI (9999772095)


What consist of House Property?Property must be consist of any building or land appurtenant thereto.



Conditions for TaxabilityProperty must be in the ownership of the AssesseeProperty should not be use in the business of Assessee



Is location of property relevant?No, it does not matter that Property is situated in India or outside India.

In both of the cases Property shall be taxable in the head of Income from House Property.*Prepared by: CA. V.K. SAINI (9999772095)


Deemed OwnerTransfer to spouse or to a minor child who is not a married daughter

Holder of impartible estate

Member of co-operative society



Deemed OwnerPerson in possession of property.(Sec 53A)

In case of HUF which have not been partitioned to members, the Karta of HUF

Person having right in a property fora period not less than 12 years.



Computation of Taxable Income from House PropertyGross Annual ValuexxxxxLess: Municipal TaxxxxxxNet Annual ValuexxxxxLess: Deduction u/s 24(i) S.D. of 30% of Annual Value xxxxx(ii) Interest on LoanxxxxxTaxable Income from H.P.xxxxx*Prepared by: CA. V.K. SAINI (9999772095)


What is Gross Annual Value?Sec 23(1)(a)

Sum for which Property might reasonably be expected to be let from year to year.

It is something like notional rent which could have been derived, had the property been let.*Prepared by: CA. V.K. SAINI (9999772095)


Let out House PropertyWhere Rent Control Act ApplyStep-AHigher of the Fair Value and Municipal ValueIn any case above amount can not exceed the Standard RentStep-BHigher of the actual rent received or receivable and Annual value calculated in step-A

Where Rent Control Act does not applyStep-AHigher of the Fair Value and Municipal Value

Step-BHigher of the actual rent received or receivable and Annual value calculated in step-A*Prepared by: CA. V.K. SAINI (9999772095)


Self occupied House PropertyIf assessee have a single house then Annual value of such house shall be NIL

If assessee have more than one house then valuation of one of them shall be at NIL and valuation of other houses shall be as they are let out.*Prepared by: CA. V.K. SAINI (9999772095)


Partly let out House PropertyValuation of self occupied portion shall be at NIL.Valuation of let out portion as fully let outBut if assessee let out the property for some period in the year and occupied for the remaining period then there is no deduction for the occupied period.*Prepared by: CA. V.K. SAINI (9999772095)


Rules for the unrealized rentIf owner of Property cannot realize the rent from the tenant then such rent received rent shall be deemed the GAV.But after fulfilling some conditions.Tenancy is bona fideTenant has vacated, or steps have been taken to compel himTenant is not occupation of any other property of the assesseeAll reasonable steps have been taken to institute legal proceedings for the recovery of the unpaid rent



Subsequent recovery of unrealized rentSuch recovery shall be taxable in the previous year of receipt of unrealized rent irrespective of the ownership if:

a deduction has been claimed and allowed in respect of such unrealized rent

and no deduction u/s 24 shall be given on this recovery*Prepared by: CA. V.K. SAINI (9999772095)


Special provisions for arrears of rent receivedWhere the assessee is the owner of House Property and received arrears of rent from such property, not charged to income tax in any previous year

then such amount, after deducting 30% of such amount, shall be deemed to be income from House Property

irrespective of the ownership of the House Property*Prepared by: CA. V.K. SAINI (9999772095)


Deductions from Net Annual Value



Standard deduction u/s 24(i)

In case of let out House Property

30% of the NAVThis deduction is notional deduction irrespective of actual expenditure for realization of rentIn case of self occupied House PropertyThere will no deduction as NAV is NIL*Prepared by: CA. V.K. SAINI (9999772095)


Deduction of interest on loanIn case of let out House Property

All the interest paid or dueIn case of self occupied House Property

Deduction is limited to Rs.30,000/- for each co-owner separately



Maximum Deduction of interest

In case of self occupied House Property Maximum amount of deduction of interest is Rs. 1,50,000/- if the following conditions are satisfied:1.Loan is taken on or after 01.04.19992.House Property was acquired/constructed within three years from the end of Financial Year in which loan was taken*Prepared by: CA. V.K. SAINI (9999772095)


Interest attributable to prior construction/acquisition periodInterest from the date of borrowing

Till the end of the previous year prior to the previous year in which the house is completed

Interest of the previous year in which construction was completed will be deducted as normal interest*Prepared by: CA. V.K. SAINI (9999772095)


Interest on loan taken for repayment of loan

Such interest shall be allowed as deduction

But interest on interest shall not be allowed*Prepared by: CA. V.K. SAINI (9999772095)


Income from the head Capital Gain*Prepared by: CA. V.K. SAINI (9999772095)


Capital AssetHouse Property is a Capital Asset if it is Owned by the assessee

If holding period of house property is more than 36 months then it is Long Term Capital Asset otherwise Short Term Capital Asset*Prepared by: CA. V.K. SAINI (9999772095)


Chargeability of capital gainOn the transfer of Capital asset in the previous year being house property owned by the assessee

If the sale consideration is more than the acquisition value of the house property*Prepared by: CA. V.K. SAINI (9999772095)


What is transfer?Transfer includes-Sale, exchange or relinquishmentThe extinguishment of any right in the assetCompulsory acquisition thereof under any lawConversion into stock in trade



Computation of Capital GainSale proceedsxxxxxLess: transfer expensesxxxxxLess: indexed cost of acquisition xxxxxLess: indexed cost of improvementxxxxxCapital Gain/Lossxxxxx*Prepared by: CA. V.K. SAINI (9999772095)


Special provision for full value of Consideration Sec. 50 CWhere consideration received as a result of the Transfer of a land or building or both,

-is less than the value adopted by stamp valuation authority of State Government

-for the purpose of payment of stamp duty

-then such value adopted shall be deemed to be full value of the consideration received.*Prepared by: CA. V.K. SAINI (9999772095)


Special provision for full value of Consideration Sec. 50 CAssessee may claim before any Assessing Officer that such value adopted exceeds the fair market value of the property on the date of transfer.

The Assessing Officer may refer the valuation of property to valuation officer

and if such value is less than value adopted by the A.O. then such value shall be taken for the computation of Capital Gain



Section 54

Exemption of capital gain on transfer of residential house propertyConditions for avail exemption-1.Owner must be an individual or HUF2.There should be transfer of a House Property which is Long Term Capital Asset3.Income from such house should be taxable in the head Income from house property*Prepared by: CA. V.K. SAINI (9999772095)


Section 54

4.Assessee has purchase another residential House Property one year before or two years after the date on which transfer took place

5.Or has within three years after that date constructed



What will be the amount of exemption?

Exemption will be provide to the maximum

amount invested into another house property*Prepared by: CA. V.K. SAINI (9999772095)


If assessee fails to invest the amountIf assessee fails to invest the amount of capital gain into another residential house property before the due date of filling the return of income

Then he may deposit the amount into Capital Gain account scheme 1988

The amount deposited shall be deemed to be cost of another house property*Prepared by: CA. V.K. SAINI (9999772095)


Withdrawal of exemptionExemption granted on the capital gain shall be withdrawn if-the new house property purchased/constructed is transferred within three years of purchase/construction

Amount deposited in the capital gain scheme 1988 is not utilized for purchase/construction in the stipulated time period



Can amount deposited be used for any purposeNo, the amount deposited cant be used other than for purchase/construction of house property

If amount is used for any other purpose then such amount shall be treated Short Term Capital Gain for that previous year and liable to tax*Prepared by: CA. V.K. SAINI (9999772095)


Section 54FExemption of capital gain on transfer of capital asset other than house property

If an assess transfer a Long Term Capital asset other than house propertyand purchase house property then he can avail exemption of this section



Conditions for availing exemptionAssessee must be an individual or HUFTransferred capital asset is not a residential house propertyCapital asset is a Long Term Capital AssetOn the date of transfer assessee has not more than one houseAssessee has purchase another House Property one year before or two years after the date on which transfer took place



Amount of exemptionExemption from Capital Gain shall be avail in the proportion of amount of sale consideration invested in the new House Property

In other words amount of exemption shall be

Capital gain* amount invested sale consideration*Prepared by: CA. V.K. SAINI (9999772095)


Other conditions are same

All other conditions of section 54 are applied to this section as they applied in section 54*Prepared by: CA. V.K. SAINI (9999772095)


Some cases related to House PropertyIncase of sale of land and building, capital gain is bifurcated between long term capital gain and short term capital gainConstruction of new floor in the same building shall be entitled to exemption under section 54Release of share by one co-owner in the favor of another co-owner shall be deemed purchase by another co-ownerAmount of capital gain partly invested in purchase of new house property and partly amount used in construction of new floor is allowed*Prepared by: CA. V.K. SAINI (9999772095)


Wealth Tax Act,1957*Prepared by: CA. V.K. SAINI (9999772095)


Charge of Wealth Tax (Sec.3)Wealth Tax shall be charged on the net wealth on the corresponding valuation date

of every Individual, HUF and company

at the rate of 1% of the amount by which net wealth exceeds Rs.15 lakhs*Prepared by: CA. V.K. SAINI (9999772095)


What is Asset?Section 2(ea)(i)Asset means-Any building or land appurtenant thereto, whether used for - residential purpose or- commercial purpose (if it is vacant or let out) or- for the purpose of maintaining of guest house *Prepared by: CA. V.K. SAINI (9999772095)


Not to be includedA House meant exclusive for residential purpose

A house which is allotted by a company to an employee or officer or whole time director, having a gross salary of less than Rs.5 lakhs

Any house for residential or commercial purpose which form part of stock in trade



Not to be includedAny house used for the purpose of any business or profession carried on by him

Any residential property that has been let out for a minimum period of 300 days in the previous years

Any property in the nature of commercial establishment or complexes



Taxability of farm houseFarm house shall be included in Asset if it is

situated within 25 km from the local limit of

any municipality or a cantonment board*Prepared by: CA. V.K. SAINI (9999772095)


Computation of Net WealthAggregate value of all assets wherever located belonging to the assesseeAggregate value of all asset required to be included in the net wealth of the assessee

Less: Exemption u/s 5 of Wealth Tax Act

Less: Debts owed by the assessee on the valuation date relating to asset included in his wealth*Prepared by: CA. V.K. SAINI (9999772095)


Exemption u/s 5 of Wealth Tax ActWealth Tax shall not be payable on the following:1.Any property held under trust or other legal obligation for any public purpose of a charitable or religious nature in India [sec.5(i)]2.The interest of the assessee in the co-parcenary property of any HUF [sec.5(ii)]



Exemption u/s 5 of Wealth Tax Act3.Any building in occupation of Ruler being a building which was decleared as his official residence by the Central Govt. under Merged State Order [sec.5(iii)]

4.One house (whether residential or commercial or whether let out or self occupied) or part of a house or a plot of land of 500 sq. metres or less [sec.5(vi)]*Prepared by: CA. V.K. SAINI (9999772095)


Determination of value of Immovable PropertyValuation of Property as per Rules 3, 4 and 5 of Part B of Schedule IIIxxxxxAdd: Adjustment for unbuilt AreaAs per Rule 6xxxxxLess: Adjustment for unearned increase in the value of landxxxxx*Prepared by: CA. V.K. SAINI (9999772095)


Valuation of Property Valuation of property shall be done as per

rules 3,4 and 5 of part B of schedule III

which is divided in 5 steps*Prepared by: CA. V.K. SAINI (9999772095)


Step-1 Determination of actual rentActual rent received or receivable Add:1.Taxes in respect of the property agreed to be borne by the tenant 2.1/9th of actual rent received or receivable where the repairs are to be borne by the tenant 3.15% interest on the deposit received reduced by interest actually paid by the tenant (only if such deposit is for more than three months)*Prepared by: CA. V.K. SAINI (9999772095)


Step-1 Determination of actual rent4. Non refundable deposit spread equally over the period of the lease5.Value of any perquisite or benefit received by the assessee for leasing out the property6.Any obligation of the owner met by the tenant



Step-2 Determination of annual rentWhere property is let out for the entire year

Actual RentWhere property is let for part of the year

Actual rent*12No. of month for which property was let out*Prepared by: CA. V.K. SAINI (9999772095)


Step-3 Determination of Gross Maintainable Rent*Prepared by: CA. V.K. SAINI (9999772095)


Step-4 Determination of Net Maintainable RentGross Maintainable RentxxxxxLess: 15% of GMRxxxxxLess: Municipal Taxes xxxxx(on paid basis whether by owner or tenant)NET MAINTAINABLE RENTxxxxx*Prepared by: CA. V.K. SAINI (9999772095)


Step-5 Valuation of PropertyCASE-1

Where property has been acquired or constructed on or before 31.03.1974CASE-2

Where property has been acquired or constructed after 31.03.1974



Case-1Property constructed on freehold landProperty constructed on Lease hold Land and unexpired Period of Lease is 50 years or moreWhere unexpired Period of Lease is less than 50 years

NMR * 12.5

NMR * 10

NMR * 8*Prepared by: CA. V.K. SAINI (9999772095)


Case-2Value of the property shall be higher of the following:

1. NMR * Capitalization Factor (12.5/10/8)

2. Cost of acquisition /construction + cost of improvement*Prepared by: CA. V.K. SAINI (9999772095)


Remedy to assessee Valuation of any one house property which is constructed/acquired after 31.03.1974

and used for his own residential purpose throughout the year

and whose cost of acquisition/construction + cost of improvement does not exceed :*Prepared by: CA. V.K. SAINI (9999772095)


Remedy to assessee-Rs.50 lakhs in case house is situated in

Delhi/Mumbai/Kolkata/Chennai

-Rs.25 lakhs in case of other cities

shall be the NMR * Capitalization Factor (12.5/10/8)



Adjustment for unbuilt area of plot of land as per Rule-6If unbuilt area > Specified area

then there shall be addition in the value of

property as per Rules 3, 4 & 5 of

as per % of default*Prepared by: CA. V.K. SAINI (9999772095)


What is percentage of default?

Unbuilt Area - Specified Area Aggregate Area*Prepared by: CA. V.K. SAINI (9999772095)


What is Specified Area?Specified Area is in the sense of permissible

unbuilt area

Therefore if Unbuilt Area > Specified Area,

then addition shall be made as per Rule 6*Prepared by: CA. V.K. SAINI (9999772095)


Specified Area mentioned in Wealth Tax ActWhere property situated inDelhi, Mumbai, Kolkata, Chennai

Specified citied

Other cities

60% of aggregate area





Addition in the value of property as per Rule -6% of defaultUpto 5%5% to 10%

10%to 15%15% to 20%Above 20%Addition NIL20% of value as per rules 3 4 & 530% of value40% of valueFMV of property (Rule-8)*Prepared by: CA. V.K. SAINI (9999772095)


Adjustment for unearned increased in value of land as per Rule-7If the property is constructed on a land taken on lease from Govt. Authority

and Govt. Authority is entitled to recover a specified % of unearned increase in the value of land at the time of transfer of property then, the value determined as per Rules 3, 4, 5 & 6 shall be reduced by the least of the following :*Prepared by: CA. V.K. SAINI (9999772095)


Adjustment for unearned increased in value of land as per Rule-7

Amount of unearned increase liable to be recovered by the Govt. Authority

50% of the value as per Rules 3, 4, 5 & 6*Prepared by: CA. V.K. SAINI (9999772095)


What is unearned increase?Unearned increase means the difference between the :

value of such land as determined by the Govt. Authority for the purpose of calculating such increase

and the lease premium paid or payable to the Govt. Authority for lease of land*Prepared by: CA. V.K. SAINI (9999772095)


Rule-8Notwithstanding contained in Rules 3 to 7 the value of the property shall be estimated to be the price which, in the opinion of the Assessing Officer,

it would fetch if sold in the open market on the valuation date.*Prepared by: CA. V.K. SAINI (9999772095)


Cases, where Rule-8 applyWhere the A.O. is of the opinion that it is not practicable to the apply Rules 3 to 7

Where the difference between the unbuilt area and the specified area exceeds 20% of the aggregate area

Where the property is constructed on a leasehold land and the lease expires within a priod of less than 15 years and the deed of lease does not give an option for the renewal of the lease*Prepared by: CA. V.K. SAINI (9999772095)




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130827 46108 taxability of house property

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