Income From House Property
Income From House Property
Income From House Property
LECTURE 10
Buildings or lands appurtenant thereto The term building includes residential houses, bungalows, office buildings, warehouses, docks, factory buildings, music halls, lecture halls, auditorium etc. The appurtenant lands in respect of a residential building may be in the form of approach roads to and from public streets.
However, if a house property, or any portion thereof, is occupied by the assessee, for the purpose of any business or profession, carried on by him, the profits of which are chargeable to income-tax, the value of such property is not chargeable to tax under this head.
Rental income from a vacant plot of land (not appurtenant to a building) is not chargeable to tax under the head Income from house property, but is taxable either under the head Profits and gains of business or profession or under the head Income from other sources, as the case may be. However, if there is land appurtenant to a house property, and it is let out along with the house property, the income arising from it is taxable under this head.
DEEMED OWNER
Section 27 of the Income Tax Act provides that, in certain circumstances, persons who are not legal owners are to be treated as deemed owners of house property for the purpose of tax liability under this head.
1. If an individual transfers a house property to his or her spouse (except in connection with an agreement to live apart) or to a minor child (except a married daughter) without adequate consideration, he is deemed as the owner of the property for tax purposes. However, if an individual transfers cash to his or her spouse or minor child, and the transferee acquires a house property out of the gifted amount, the transferor shall not be treated as the deemed owner of the house property.
2. The holder of an Impartible Estate is deemed to be the owner of all the properties comprised in the estate. 3. A member of a co-operative society, company or association of persons, to whom a property (or a part thereof) is allotted or leased under a house building scheme of the society, company or association, is deemed to be the owner of such property. 4. A person who has acquired a property under a power of attorney transaction, by satisfying the conditions of section 53A of the Transfer of Property Act, that is under a written agreement 5. A person who has acquired a right in a building (under clause (f) of section 269UA), by way of a lease for a term of not less than 12 years (whether fixed originally or extended through a provision in the agreement), is the deemed owner of the property.
6. Property income of a registered trade union [section 10(24)]. 7. Income from property held for charitable purposes [section 11]. 8. Property income of a political party [section 13A]. 9. Income from property used for own business or profession [section 22]. 10. Annual value of one self occupied property [section 23(2)].
The following four factors have to be taken into consideration while determining the Gross Annual Value of the property: 1. Rent payable by the tenant (actual rent) 76 2. Municipal valuation of the property. 3. Fair rental value (market value of a similar property in the same area). 4. Standard rent payable under the Rent Control Act.
Actual Rent: It is the most important factor in determining the annual value of a let out house property. It does not include rent for the period during which the property remains vacant. Municipal Valuation: Municipal or local authorities charge house tax on properties situated in the urban areas.
Fair Rental Value: It is the rent normally charged for similar house properties in the same locality. Standard Rent: Standard Rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act.
IMPORTANT TO NOTE
The Gross Annual Value is the municipal value, the actual rent (whether received or receivable) or the fair rental value, whichever is highest. If, however, the Rent Control Act applies to the property, the gross annual value cannot exceed the standard rent under the Rent Control Act, or the actual rent, whichever is higher.
If the property is let out but remains vacant during any part or whole of the year and due to such vacancy, the rent received is less than the reasonable expected rent, such lesser amount shall be the Annual value. For the purpose of determining the Annual value, the actual rent shall not include the rent which cannot be realized by the owner.
Interest on Borrowed Capital Interest on Borrowed capital is allowed as deduction if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property It is deductible on accrual basis. It can be deductible as yearly, it is deductible even if it is not actually paid during the previous year No deduction for any brokerage or any expenses for arranging the loan is allowed interest of a fresh loan taken for the repayment of the earlier loan is allowed as deduction
Thus, the interest payable outside India, will not be allowable as deductions if No tax is paid thereon or No tax is deducted at source therefrom or There is no person in India who is liable to pay tax thereon as agent
Procedure in case of co owners Determine the income of the whole house property Divide the income between the co-owners according to the shares Include the share of each co-owner in other incomes of each of them to find his total income. Tax the co-owner accordingly.
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