computation of income from house property

Computation of income from house propertyFor

Taxation students based on

Goa University B Com syllabus

For Assessment year 2015-16By

Dr. Sanjay P Sawant Dessai

Associate professor VVM Shree Damodar College of Commerce and Economics Margao Goa

01/05/2023 [email protected]

• Sections:• Definition of Annual Value u/s. 2(2). • 22 Chargeability • 23 Computation of annual value• 24 Deductions available • 25 deductions not allowed • 25(AA) unrealised rent of previous year 2001-02

(or subsequent years ) is collected subsequently• 25(B) Mode of taxation of arrears of rent in the

year of receipt • 26 Property owned by co-owners • 27 Deemed owner

COMPUTATION OF INCOME FROM HOUSE PROPERTY


Annual value determined under section 23 Annual value of house property (U/s 23) – It

is the annual value of house property which is charged to tax after allowing certain deductions therefore

(Details are covered under section 23)

01/05/[email protected] 3

Annual Value u/s. 2(2)

Income is taxable under head “Income from house property ” if following conditions are satisfied

1. The property should consist of any building or lands appurtenant thereto. (land attached to building )

2. The assessee should be owner of the property. 3. The 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 tax .

Section 22 Basis of charge


It is inherent capacity of the property to earn income

The amount for which the property may reasonably be expected to be let out.

The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent Control Act, the rent of similar properties in the same locality, are all pointers to the determination of annual value.

How annual value is determined


Not necessary that the property should actually be let out.

Not necessary that the reasonable return from property should be equal to the actual rent realized when the property is let out.

Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value.

If actual rent is less than the reasonable rent, then reasonable rent will be the annual value.

DETERMINATION OF ANNUAL VALUE


• Step 1- find out reasonable expected rent of the property

• Step 2-find out actual rent received or receivable after deducting unrealised rent but before deducting loss due to vacancy

• Step 3- find out which one is higher – among computed in step 1 and 2

• Step 4- find out loss because of vacancy • Step 5-step 3 minus step 4 is gross annual

value

Computation of Gross annual value sec 23 (1)


• Reasonable expected rent is deemed to be the sum for which the property might reasonably be expected to be let out for year to year.

• In determining reasonable rent, several factors have to be taken into consideration, such as

• Location• Annual ratable value fixed by the municipalities• Rent of similar properties in neighborhood,• Rent which property likely to fetch having regard

to-a) Demand and supplyb) Cost of construction of the property andc) Nature and history of the property

Reasonable expected rent

Back 01/05/2023 [email protected]

• In majority cases, reasonable rent can be determined by taking into consideration the following factors

• Municipal valuation of property • Fair rent of the property The higher of the above is generally taken as

reasonable expected rent Note – If property is covered by rent control Act,

then the amount so computed cannot exceed the standard rent.

Back



Case I Case II

Case III

Case IV

Municipal value 48000 60000 50000 40000

Fair Rent 40000 70000 40000 45000

Higher of the two above , but cannot exceed standard rent Standard rent 50000 80000 45000 38000


48000 70000 45000 38000



Municipal value –Rs 12000 Fair rent –Rs 14000 Standard rent Rs 13000 Unrealised rent Rs 2000 Vacancy allowance Rs 1000 Rent receivable Rs. 16,000

Problem


Municipal value 12,000

Fair rent (whichever higher of the MR &FR is reasonable expected rent )

14,000 14,000

Standard rent ( Reasonable rent cannot exceed SR wherever rent control Act applicable )

13,000

Step I Reasonable expected rent (Municipal value or fair rent , whichever is higher, but subject to maximum of standard rent )

13,000

Step II Rent received / receivable after deducting unrelised rent of current previous year (16,000-2,000)

14,000

Amount computed in step I and II , whichever is higher 14,000

Less, Loss due to vacancy 1,000

Gross annual value 13,000

Computation of gross annual value


Income from house property is determined as under:

Gross Annual Value xxxxxxx Less: Municipal Taxes xxxxxxx

Net Annual Value xxxxxxx Less: Deductions under Section 24 - Statutory Deduction (30% of Net Annual Value)

xxx - Interest on Borrowed Capital xxx

Income From House Property xxxxxx

COMPUTATION OF INCOME FROMLET OUT HOUSE PROPERTY


Gross annual value Rs 2,00000 Municipal tax Rs 25,000 Interest on borrowed capital –Rs. 30,000

Problem on calculation of income from house property (letout )


Income from house property is determined as under:

Gross Annual Value 2,00,000Less: Municipal Taxes 25,000

Net Annual Value 1,75,000

Less: Deductions under Section 24

Statutory Deduction (30% of NAV) 52500

Interest on Borrowed Capital 30,000 82,500

Income From House Property 92,500

COMPUTATION OF INCOME FROMLET OUT HOUSE PROPERTY


1. Sum equal to 30 percent of net annual value

2. Interest on borrowed capital – if capital is borrowed for purchase, construction, repair, renewal or reconstruction of property. (Deduction is allowed on accrual basis)

3. Pre construction interest – will also be deductible in five equal installments commencing from the previous year in which such property is constructed or acquired

Deduction under head income from house property ( Let out and deemed to be let out ) Sec 24


Interest on borrowed funds will not be allowed as deductions, if such amount are payable outside India, and no tax has been paid or deducted at source or no person is taxable as agent in India in respect of such amount of interest.

Amount not deductable (u/s 25)


The amount realized shall be charged to tax as the income of the previous year in which such rent is realized,

whether or not the assessee is the owner of that property in the previous year.

No deductions shall be allowed for such unrealized rent received.

Recovery of unrealized rent of AY 2002-03 and subsequent years


• Arrears of rent will be charged to income tax as income of the previous year in which such rent is received, whether the assessee is the owner of that property in that year or not .

• Deduction is allowed in respect of 30 percent of such amount received as arrears of rent.

Arrears of rent received (u/s 25 B)


Where house property is owned by two or more persons and their respective share are defined and ascertainable, share of each co-owner, in the income of house property, will be included in his total income

Property owned by co –owners (u/s 26)


• Section 27 provides that following will be deemed owner of the house property for the purpose of charging tax on Annual Value.

• i) Transfer to spouse or minor child• ii) Holder of impartible estate• iii) Property held by a member of Co-

operative Society• iv) Person who has acquired a property

under Power of attorney transaction• v) Person who has acquired the Right in

Property u/s 269 UA (Property held on lease exceeding 12 years)

Deemed owners


Loss from house property shall be set off against income under the same head or any other heads of income in the same year, Thereafter, if there is a loss remaining unadjusted, such unadjusted loss can be carried forward and set off in subsequent years subject to a limit of 8 assessment years against income from house property.

Set off and carry forward of loss


Where property is occupied be the owner for his own residence, the annual value of such a house shall be taken as nil.

However, the following two conditions must be satisfied ;

The property or part thereof is not let out actually during any part of the previous year, and

No benefit is derived from such property

Income from self occupied house property


Interest on borrowed capital for self occupied property –

The deduction in respect of interest on borrowed fund is Rs 2,00,000

Conditions The house property is acquired or constructed with

capital borrowed on or after 1st April 1999 Loan should be taken for acquisition or construction

and not for repairs , renewals, reconstruction etc. ( for repairs, renewals and reconstruction purpose Rs. 30,000 only )

Deductions available for self occupied house property


If person has occupied two or more houses for his residential purpose, in that case only one house according to his choice is treated as self – occupied and all other houses will be treaded as deemed to be let out house and all deductions as are applicable to let out property would be allowed.

Deemed to be let out house property


Loss can be set off against the income of the assessee under the same head of income or any other income of the assessee for the same assessment year

Set off of loss from self occupied house property


computation of income from house property

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