Chapter 5 : Income from House Property (Section 22 to 27) Advance Direct Tax and Service Tax [Sub code : 441]

Transcription

1 Chapter 5 : Income from House Property (Section 22 to 27) Advance Direct Tax and Service Tax [Sub code : 441]

2 Learning Objectives Income from House Property Annual Value How Determined (Section 23) Deductions from Income from House Property Amounts not Deductible from Income When no TDS Effected (Section 25) Property Owned by Co-Owners How to Compute Tax on House Property? Exemptions Chapter 5 : Income from House Property 2

3 Introduction Section 22 of the Income Tax Act, 1961 requires that annual value of any property consisting of any buildings or lands appurtenant thereto, of which the Assessee is the owner, shall be taxable. For being so taxed, the assessee must be the owner of such property. If a property is occupied by an assessee for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, its annual value shall not be taxable under the head Income from House Property. The levy of tax while taxing the income from House Property is on the income from the property and not on the property itself. Chapter 5 : Income from House Property 3

4 INCOME FROM HOUSE PROPERTY [Section 22] The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property". What is charged under section 22 is the annual value of the ownership of the property irrespective of the fact whether or not any income was either actually received or had accrued to the assessee. When any property is mortgaged or a loan is obtained under security of the property, its income computed as Prescribed would be liable to be taxed. Chapter 5 : Income from House Property 4

5 ANNUAL VALUE - HOW TO DETERMINED [Section 23] The annual value of any property shall be deemed to be Self occupied house or non-occupation by reason of employment, business or profession : Annual Value will be NIL Where the non-occupied house is let out: Annual value will be the Actual Rent Realized after giving adjustment specified under the act. Where the Assessee owns more than one house: Annual value of any one house will be NIL, and for every other house it will be calculated as if they are deemed to belet out. Chapter 5 : Income from House Property 5

6 Unrealized Rent The unrealized rent shall be that amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where: the tenancy is bona fide; the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; the defaulting tenant is not in occupation of any other property of the assessee; the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless Chapter 5 : Income from House Property 6

7 DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY Standard Deduction: A lump sum standard deduction of 30% of the annual value Deduction towards Interest Payable: Up to Rs.30,000/- for the Loans before 01/04/99 Up to Rs.1,50,000/- for the Loans after 01/04/99 (However, such acquisition/construction is completed in 3 years from the end of the financial year in which capital was borrowed) Where the property has been acquired or constructed with borrowed capital, the interest, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, shall be deducted in equal installments for the said previous year and for each of the four immediately succeeding previous years Chapter 5 : Income from House Property 7

8 Unrealized Rent received subsequently Where the assessee cannot realise rent from a property let to a tenant and subsequently the assessee has realised any amount in respect of such rent, the amount so realised shall be deemed to be income chargeable under the head "Income from house property" and accordingly charged to incometax as the income of that previous year in which such rent is realised whether or not the assessee is the owner of that property in that previous year. Chapter 5 : Income from House Property 8

9 Special provision for arrears of rent received [Section 25B] Where the assessee- is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting a sum equal to thirty per cent of such amount, shall be deemed to be the income chargeable under the head "Income from house property as the income of that previous year in which such rent is received, whether the assessee is the owner of that property in that year or not. Chapter 5 : Income from House Property 9

10 PROPERTY OWNED BY CO-OWNERS Section 26 provides that where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons (AOP), but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. Where the shares of the co-owners are not definite and ascertainable, the annual value of such property shall be assessed as an association of persons (AOP) jointly. Here, the benefit of deduction under the law is available only to the AOP and not to each co-owner. Chapter 5 : Income from House Property 10

11 Owner of House Property For the purposes of sections 22 to 26 the owner of the property under various situations described below shall be an individual shall be considered as owner of the property transferred if it is transferred to spouse otherwise than for adequate consideration the holder of an impartible (indivisible) estate (i.e. group of assets left by a deceased person) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 Chapter 5 : Income from House Property 11

12 Tax on House Property Income There is no special rate of tax in respect of Income from House Property Tax on Income from House Property is chargeable at the normal rates The losses under Income from House Property are available for being set off against income from other sources under the same head [Section 70] The loss still remaining is eligible to be set off against other heads of Income in the same year [Section 71] If such loss still remains unabsorbed, it may be carried forward to following years to be set off against Income from House Property of subsequent eight years [Section 71 B] Chapter 5 : Income from House Property 12

13 Exemptions The following items of Income from House Property are Exempted from Income Tax Income from house property situated in the immediate vicinity of or on the Agriculture Land, Income from house property held under trust for charitable or religious purpose, Income from property occupied by the owner for the purpose of his business and profession and profits of which are chargeable to income tax, Income from house property belonging to a Registered Trade Union Income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, Chapter 5 : Income from House Property 13

14 Contd The annual value of any one Palace in the occupation of an ex-ruler, Income from house property belonging to a local authority, Income from property of the approved scientific research association subject to fulfillment of certain conditions, Income from property of a games association, Income from property in case of a person resident of Ladakh, Income from property of a Political Party, Income from property of an authority constituted for the purpose of planning, development or improvement of cities, town and villages Chapter 5 : Income from House Property 14