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House I House II House III
Rs. Rs. Rs.
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Municipal value 1,00,000 1,50,000 2,00,000
Fair rent 1,40,000 1,80,000 2,40,000
Standard rent 1,20,000 2,00,000 -
Actual rent (per month) 12,000 17,500 21,000
Period of vacancy Nil 1 month 6 months
Municipal taxes for the year 20% of municipal value 40,000 50,000
Municipal tax paid during the year 20,000 80,000 30,000
Compute the income under the head house property of all the 3 properties.
Computation of Income of a property which is self-occupied for residential purposes or could not actually be self occupied owing to employment [Section 23(2), (3) & (4)]
Where the property consists of a house or part of a house which-
- (a) is in the occupation of the owner for the purposes of his own residence; or
- (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,
The annual value of self-occupied house shall not be nil:
- if such house or part of the house is actually let during the whole or any part of the previous year; or
- any other benefit therefrom is derived by the owner from such
house.
Where assessee has more than one house for self occupation: If there are more than one residential houses, which are in the occupation of the owner for his residential purposes then he may exercise an option to treat any one of the houses to be self-occupied. The other house(s) will be deemed to be let out and the annual value of such house(s) will be determined as calculated above i.e. the sum for which the property might reasonably be expected to let from year to year.
Deduction in respect of one self occupied house where annual value is nil: Where annual value of one self-occupied house is nil, the assessee will not be entitled to the statutory deduction of 30%, as the annual value itself is nil. However, the assessee will be allowed deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under:-
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(a) Where the property is acquired or constructed with capital borrowed on or after 1-4-1999 and such acquisition or construction is completed within 3 years of the end of the financial year in which the capital was borrowed |
Actual interest payable subject to maximum Rs. 1,50,000 if certificate mentioned in point 2 in box given below is obtained |
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(b) In any other case, i.e., borrowed for repairs or renewal or conditions mentioned in clause (a) are not satisfied |
Actual interest payable subject to maximum of Rs. 30,000 |
Question 9: X has two houses, both of which are self-occupied. The particulars of the houses are as under:
Ist House (Rs.) IInd House (Rs.)
Municipal Value 60,000 90,000
Fair Rental Value 72,000 1,20,000
Standard rent - 1,00,000
Date of completion 1-1-1992 1-10-1992
Municipal taxes 6,000 9,000
paid during the year paid during the year
Suggest which house should be opted by X to be assessed as self-occupied so that his tax liability is minimum.
Interest when not deductible from "Income from House Property" [Section 25]
Interest on borrowed money which is payable outside India shall not be allowed as deduction u/s 24(b), unless the tax on the same has been paid or deducted at source and in respect of which there is no person in India, who maybe treated as agent of the recipient for such purpose.
Subsequent recovery of unrealized rent
(A) Recovery of unrealized rent allowed as deduction upto assessment year 2001-02 [Section 25A]: Where a deduction has been claimed and allowed to the assessee in respect of unrealized rent in assessment year 2001-02 or prior to that and subsequently the assessee realizes any amount in respect of such rent, the amounts so realized shall be deemed to be income chargeable under the head "Income from house property" and accordingly charged to tax as the income of that previous year, irrespective of the fact whether the assessee is the owner of the property in that year or not. No deduction under section 23 or section 24 whatsoever will be allowed to the assessee from such unrealized rent recovered.
(B) Recovery of unrealized rent already reduced from the annual value for assessment year 2002-03 and onwards [Section 25AA]: Where the assessee cannot realize rent from a property let to a tenant and subsequently the assessee has realized any amount in respect of such rent, the amount so realized shall be deemed to be income chargeable under the head "Income from house property" and accordingly charged to income-tax as the income of that previous year in which such rent is realized whether or not the assessee is the owner of that property in that previous year.
Special provisions for arrears of rent received [Section 25B]
Where the assessee:
- (a) is the owner of any property consisting of
any buildings or lands appurtenant thereto which has been let to a
tenant; and
- (b) 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 30% of such amount, shall be deemed to be the income chargeable under the head income from house property. Further, it will be charged to income-tax 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.
Property owned by Co-owners [Section 26]
Sometimes the property consisting of buildings or the buildings and lands appurtenant thereto is owned by two or more persons, who are known as co-owners. In such cases, if their respective shares are definite and ascertainable, such persons shall not be assessed as an AOP in respect of such property, but the share of each such person in the income from the property, as computed in accordance with sections 22-25, shall be included in his total income.
Where the house property owned by the co-owners is self occupied by each of the co-owner, the annual value of the property for each of such co-owner shall be nil and each of the co-owner shall be entitled to the deduction of Rs. 30,000/1,50,000 under section 24(b) on account of interest on borrowed money.
As regards, the property or part of the property which is owned by co-owners is let out, the income from such property or part thereof shall be first computed as if this property/part is owned by one owner and thereafter the income so computed shall be apportioned amongst each co-owner as per their definite share.
Property owned by partners of the firm: It is true that in the ultimate analysis it is the partners of the firm taken as a whole who are owners of the house property. But, when these partners go by a firm-name in their collective capacity, and when a particular immovable property or properties happen to be included in the assets of the firm, the income from such property can and should be assessed in the hands of the firm. In law, the joint effects of a partnership firm belong to the firm; a partner has no individual right in any specific asset of the firm and he has no exclusive right to possess or use the partnership property. Hence it is not open to any partner to seek to be assessed as an individual qua his fractional share in the firm. [Ram Narain & Bros. v CIT (1969) 73 ITR 423 (All)].
Question 10: Three brothers A, B and C having equal share are co-owners of a house property consisting of six identical units, the property was constructed on 31st May, 1992. Each of them occupies one unit for his residence and the other three units are let out at a rent of Rs. 5,000 per month per unit. The Municipal Value of the house property is Rs. 3,00,000 and the Municipal Taxes are 40% of such Municipal Value, which were paid during the year. The other expenses were as follows:
Rs.
- Repairs 20,000
- Collection charges 5,000
- Insurance Premium (paid) 11,000
- Interest payable on loan taken for construction of house
1,20,000
Compute the income under the head "Income from House Property" and the total income of the three brothers for assessment year 2008-09.
Can Annual Value (Net Annual Value) be negative?
The Annual Value (NAV) can be negative only when the municipal taxes paid by the owner are more than the gross annual value.
Can there be any loss under the head income from house property?
This brings us to the question as to whether there can be any loss under this head.
- In so far as income from a self-occupied property is concerned,
the annual value is taken as nil. No deductions are allowed except
for interest on borrowed funds up to a maximum of Rs.
30,000/1,50,000. Naturally, therefore, there may be a loss in
respect of such property up to a maximum of Rs. 30,000/1,50,000, as
the case may be.
- In respect of any other type of house property, namely a house
property which is fully let out or part of the year let out, etc.,
there are no restrictions on deductions and therefore, there can be
loss under this head in respect of such properties due to municipal
taxes as well as deductions. Similarly, deductions under section 24
in case of property deemed to be let out, can be more than net
annual value.
Question 11: X has a house which has two identical units. One of the units is self-occupied throughout the previous year and the other unit is let out throughout the previous year on a rent of Rs. 5,000 p.m. Municipal taxes for the complete house amounting to Rs. 6,000 have been paid during the previous year. The construction of the property was completed on 1-1-1992. Determine the income from house property for assessment year 2008-09.
Question 12: Following are the particulars of house properties of Mr. Sameer for the previous year 2007-08. Compute his income from house properties:
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House A |
House B |
|
Construction started on |
31-3-1991 |
10-2-1987 |
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Construction completed on |
31-3-1992 |
1-6-1991 |
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Annual Rental Value |
30,000 |
12,000 |
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Municipal valuation |
25,000 |
12,000 |
|
Municipal Tax |
2,500 |
1,200 |
|
Actual Repairs Expenses |
2,000 |
2,000 |
|
Interest on money borrowed to renovate the building |
1,200 |
- |
|
Insurance premium |
200 |
175 |
|
Ground rent |
150 |
100 |
|
Vacancy period |
3 months |
- |
|
Rent collection charges |
1,000 |
600 |
Both the above houses were let out for residential purposes. Insurance premium of House A and Ground Rent of House B are still outstanding. Repair expenses of the house A and the municipal tax of House B were paid by the tenants.
THEORETICAL QUESTIONS
- What is the meaning of Annual Value of House Property? How would you determine the annual value of house property, one-fourth portion of which is let out and three-fourth portion of which is self-occupied by the owner?
- Define annual value? State the deductions that are allowed from the annual value in computing the income from house property.
- What are the provisions of the Income-tax Act regarding the admissibility of the interest on loans taken for the construction of the house, for the period prior to the completion of construction of the house?
- Ownership itself is the criterion for assessment under the head "Income from house property". Discuss.
- Explain clearly the term "Annual Value" and explain with examples how the annual value of rented house is computed?
- What is meant by annual value of the house property? How is it determined? What deductions are allowed from annual value in computing taxable income from house property?
- State the provisions relating to computation of "Income from house property"
- What do you understand by the term "Annual Value"? How would you determine annual value in the following cases:
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- House used for self-residence for whole year.
- House let out for whole year.
- Let out for 8 months and self-occupied for remaining 4
months.
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