WHAT IS HOUSE PROPERTY?
The Income Tax Act classifies 'buildings and/or land appurtenant* thereto as *House Property'. Income derived from vacant plots of land is not charged under this head but under the head Income from other sources' or *business profits'.
ON WHOM IS TAX LEVIED?
The tax under this head is levied upon the owner, legal or beneficial and not upon the occupant. In case the assessee is not the owner but gets rent from sub-letting a property, the income will not be taxed as income from house property, but as income from other sources.
Ownership will also include deemed ownership, i.e. persons who purchase properties on Power-of-Attorney basis or under long-term lease (twenty year or more) are also deemed to be owners.
IS INCOME FROM SUPER STRUCTURE BUILT ON LEASED LAND TAXABLE AS HOUSE PROPERTY INCOME?
Yes, as the assessee is owner of the superstructure, the income from such property will be taxed in his hands as income from house property.
HOW IS THE INCOME FROM HOUSE PROPERTY COMPUTED?
Income from house property is levied not upon actual income from the property but upon the annual value as defined in the Act. The charge is not, from the 'receipt' but is on the inherent potential of the house property to generate income. However, if the owner is in self-occupation of a house property for his personal residential use, then the notional value is taken as NIL, for one such property.
WHAT IS ANNUAL LETTABLE VALUE OF HOUSE PROPERTY?
The Annual Lettable Value (ALV) of a property which is let out is the higher of the following two amounts :-
(a) the actual rent received or receivable.
(b) a sum of which the property might reasonably be expected to let out from year to year.
Where the property is not let out (and where it is not used for self residence) or it is let out for annual rent which is not higher than the 'National* annual value, the assessment is' still to be made on the basis of the 'Notional' annual value.
ARE MUNICIPAL TAXES TO BE DEDUCTED FROM THE ANNUAL LETTABLE VALUE OF THE PROPERTY?
From the Annual Lettable Value as determined above, Municipal Taxes are to be deducted, if the following conditions are fulfilled: -
1. The property must be in occupation of the tenant (deduction is not allowable in respect of self-occupied house property).
2. The Municipal taxes must be borne by the land-lord (if the municipal-taxes or any part thereof are borne by the tenant, the same will not be allowed).
3. The Municipal taxes must be paid during the year (where the municipal taxes have become due but have not been actually paid, the same will not be allowed).
HOW IS ANNUAL VALUE OF PROPERTY DETERMINED FOR THE PURPOSES OF TAXATION OF PROPERTY INCOME?
The annual value (AV), in different situations, is determined as given on next page.
ALV = [Rent actually received or Fair Market Rent, whichever is higher] - [Vacancy Allowance related to the vacant period] - [Rent not realisable].
MT = Municipal Taxes actually paid
WHAT ARE THE DEDUCTIONS NOW AVAILABLE UNDER THE INCOME TAX ACT?
The following deductions will be allowable from the annual value to determine the taxable income from house property:
(a) Repairs, collection charges, Insurance Premium, Annual Charge, Ground rent, Land revenue/Tax levied by State Government:
30% of the annual value. This is an adhoc deduction and it is not necessary that some actual expenditure be incurred.
(b) Interest on borrowed capital: on accrual basis
HAS THERE BEEN AN INCREASE IN THE LIMIT OF DEDUCTION ALLOWABLE FOR INTEREST PAYABLE ON BORROWED CAPITAL IN RESPECT OF SELF-OCCUPIED PROPERTY?
Yes. While computing the income from house property, no deduction on account of repairs, insurance premium on No deduction on account of repairs, insurance premium on property, ground rent, land revenue or vacancy allowance in respect of the self-occupied houses is allowable. However, even in this case of self-occupied property, interest on borrowed Capital is deductible.
Upto A.Y. 1998-99 a deduction upto Rs. 15,000 in respect of interest payments, on borrowed funds, for the self occupied houses was allowable. This limit of Rs* 15,000 was, w.e.f. 1.4.99 i.e. for A.Y. 1999-2000, and subsequent years, been enhanced to Rs.30,000.
The deduction for interest on borrowed capital in A.Y. 2000-2001, was limited to Rs.75,000, and for A.Y.2001-2002 this limit was increased to Rs.1,50,000.
With effect from 1 April, 2002, i.e. in relation to the assessment year 2002-2003 and subsequent years, the limit on deduction of such interest payable on housing loans for self-occupied houses has been increased from the existing Rs. 1,00,000 to Rs. 1,50,000.
This deduction may create a loss in house property which is to be set-off from other incomes under other heads. This is a big relief to the tax payers planning to own their houses on the basis of borrowings.
IS THERE A CUT OFF DATE AFTER WHICH THE PROPERTY IS TO BE ACQUIRED OR CONSTRUCTED?
Yes. For availing the higher limit of Rs.1,50,000 the property has to be acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed before the 1st day of April, 2003.
HAS THERE BEEN A CHANGE IN THE ALLOWABILITY OF INTEREST PAYABLE ON BORROWED CAPITAL IN RESPECT TO HOUSE PROPERTY REMAINING VACANT DUE TO EMPLOYMENT ETC ?
Yes, U/s 23(3), if the property cannot be occupied by the owner by reason of the fact that owing to his employment, business or profession, he has to reside at that other place in a building not belonging to him, the annual value of such property is also taken at provided that such house is not actually let and no other benefit there from is derived by the owner.
Deduction on account of interest payable on borrowed capital was not available to assessees who were unable to occupy the property by reason of their employment, etc. at a place other than where the property is situated. Effective, retrospectively, from 1st April. 1995 now the deduction on account of interest payable on borrowed capital was extended to such class of persons also.
IS PENAL INTEREST ON LOAN ALLOWABLE ?
As per CBDT Circular No. 363, dt. 24-6-83.
IS INTEREST PAYABLE ON LOAN TAKEN TO REPAY THE ORIGINAL LOAN , ALLOWABLE ?
Yes.
IS INTEREST EXPENSES FOR ARRANGING THE LOAN, i.e. PROCESSING CHARGES ETC. ALLOWABLE ?
No. Only interest on due basis on loan for acquisition is allowable.
IF THE ASSESSES IS NOT THE OWNER OF THE PROPERTY IN THAT YEAR BUT HAS RECEIVED AN AMOUNT BY WAY OF ARREARS OF RENT WHICH WERE NOT CHARGED TO INCOME TAX FOR ANY PREVIOUS YEAR, WOULD THIS AMOUNT BE CHARGEABLE TO TAX?
Yes. Now, where the assessee is the owner any property which has been let to a tenant and the assessee has received from such property any amount by way of arrears of rent, the amount so received after deducting a sum equal to 30% of such amount for repairs and collection of rent etc. shall be deemed to be income chargeable under the head "Income from House Property " and charged to Income-tax as income of the previous year in which the rent is received irrespective of whether the assessee is the owner of that property in that year or not.
CARRY FORWARD AND SET-OFF OF LOSS FROM HOUSE PROPERTY
Source: www.incometaxindia.gov.in
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The Income Tax Act classifies 'buildings and/or land appurtenant* thereto as *House Property'. Income derived from vacant plots of land is not charged under this head but under the head Income from other sources' or *business profits'.
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The tax under this head is levied upon the owner, legal or beneficial and not upon the occupant. In case the assessee is not the owner but gets rent from sub-letting a property, the income will not be taxed as income from house property, but as income from other sources.
Ownership will also include deemed ownership, i.e. persons who purchase properties on Power-of-Attorney basis or under long-term lease (twenty year or more) are also deemed to be owners.
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Yes, as the assessee is owner of the superstructure, the income from such property will be taxed in his hands as income from house property.
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Income from house property is levied not upon actual income from the property but upon the annual value as defined in the Act. The charge is not, from the 'receipt' but is on the inherent potential of the house property to generate income. However, if the owner is in self-occupation of a house property for his personal residential use, then the notional value is taken as NIL, for one such property.
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The Annual Lettable Value (ALV) of a property which is let out is the higher of the following two amounts :-
(a) the actual rent received or receivable.
(b) a sum of which the property might reasonably be expected to let out from year to year.
Where the property is not let out (and where it is not used for self residence) or it is let out for annual rent which is not higher than the 'National* annual value, the assessment is' still to be made on the basis of the 'Notional' annual value.
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From the Annual Lettable Value as determined above, Municipal Taxes are to be deducted, if the following conditions are fulfilled: -
1. The property must be in occupation of the tenant (deduction is not allowable in respect of self-occupied house property).
2. The Municipal taxes must be borne by the land-lord (if the municipal-taxes or any part thereof are borne by the tenant, the same will not be allowed).
3. The Municipal taxes must be paid during the year (where the municipal taxes have become due but have not been actually paid, the same will not be allowed).
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The annual value (AV), in different situations, is determined as given on next page.
ALV = [Rent actually received or Fair Market Rent, whichever is higher] - [Vacancy Allowance related to the vacant period] - [Rent not realisable].
One house fully self-occupied | House property away from workplace not let out | House property fully let out |
| ALV -NIL | ALV - NIL | ALV = X |
| Less: | Less: | Less: |
| MT - NIL | MT = NIL | MT = Y |
| AV = NIL | AV = NIL | AV = X (-) Y |
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The following deductions will be allowable from the annual value to determine the taxable income from house property:
(a) Repairs, collection charges, Insurance Premium, Annual Charge, Ground rent, Land revenue/Tax levied by State Government:
30% of the annual value. This is an adhoc deduction and it is not necessary that some actual expenditure be incurred.
(b) Interest on borrowed capital: on accrual basis
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Yes. While computing the income from house property, no deduction on account of repairs, insurance premium on No deduction on account of repairs, insurance premium on property, ground rent, land revenue or vacancy allowance in respect of the self-occupied houses is allowable. However, even in this case of self-occupied property, interest on borrowed Capital is deductible.
Upto A.Y. 1998-99 a deduction upto Rs. 15,000 in respect of interest payments, on borrowed funds, for the self occupied houses was allowable. This limit of Rs* 15,000 was, w.e.f. 1.4.99 i.e. for A.Y. 1999-2000, and subsequent years, been enhanced to Rs.30,000.
The deduction for interest on borrowed capital in A.Y. 2000-2001, was limited to Rs.75,000, and for A.Y.2001-2002 this limit was increased to Rs.1,50,000.
With effect from 1 April, 2002, i.e. in relation to the assessment year 2002-2003 and subsequent years, the limit on deduction of such interest payable on housing loans for self-occupied houses has been increased from the existing Rs. 1,00,000 to Rs. 1,50,000.
This deduction may create a loss in house property which is to be set-off from other incomes under other heads. This is a big relief to the tax payers planning to own their houses on the basis of borrowings.
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Yes. For availing the higher limit of Rs.1,50,000 the property has to be acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed before the 1st day of April, 2003.
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Yes, U/s 23(3), if the property cannot be occupied by the owner by reason of the fact that owing to his employment, business or profession, he has to reside at that other place in a building not belonging to him, the annual value of such property is also taken at provided that such house is not actually let and no other benefit there from is derived by the owner.
Deduction on account of interest payable on borrowed capital was not available to assessees who were unable to occupy the property by reason of their employment, etc. at a place other than where the property is situated. Effective, retrospectively, from 1st April. 1995 now the deduction on account of interest payable on borrowed capital was extended to such class of persons also.
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As per CBDT Circular No. 363, dt. 24-6-83.
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Yes.
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No. Only interest on due basis on loan for acquisition is allowable.
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Yes. Now, where the assessee is the owner any property which has been let to a tenant and the assessee has received from such property any amount by way of arrears of rent, the amount so received after deducting a sum equal to 30% of such amount for repairs and collection of rent etc. shall be deemed to be income chargeable under the head "Income from House Property " and charged to Income-tax as income of the previous year in which the rent is received irrespective of whether the assessee is the owner of that property in that year or not.
CARRY FORWARD AND SET-OFF OF LOSS FROM HOUSE PROPERTY
As per section 7IB, w.e.f. 1-4-1999, when the assessee incurs any loss under the head income from house property and such loss is not fully adjusted under other heads of income in the same assessment year, then the balance loss shall be allowed to be carried forward upto a maximum of eight assessment years and set off against income from house property.
CAN ADJUSTMENT OF LOSS FROM HOUSE PROPERTY BE MADE AGAINST SALARY INCOME FOR PURPOSES OF T.D.S. DEDUCTION?
Yes. Now w.e.f. 1.4.99 i.e. for A.Y. 1999-2000 and subsequent years, loss from house properly shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.
CAN ADJUSTMENT OF LOSS FROM HOUSE PROPERTY BE MADE AGAINST SALARY INCOME FOR PURPOSES OF T.D.S. DEDUCTION?
Yes. Now w.e.f. 1.4.99 i.e. for A.Y. 1999-2000 and subsequent years, loss from house properly shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.
Source: www.incometaxindia.gov.in
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