other important points related to income from house property

WHAT IS PRE CONSTRUCTION PERIOD:-

  • While computing income chargeable to tax under the head "Income from house property" in case of a let-out property, the taxpayer can claim deduction undersection 24(b)
  • Deduction on account of interest is classified in two forms,interest pertaining to pre-construction period and interest pertaining to post-construction period.
  • Post-construction period interest is the interest pertaining to the relevant year (the year for which income is being computed).
  • Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed.
    • Date of repayment of loan; or
    • 31st March immediately prior to the date of completion of the construction/acquisition of the property.
  • Thus, total deduction available to the taxpayer undersection 24(b)

TAX TREATMENT IF A PERSON OCCUPIED MORE THAN ONE PROPERTY FOR HIS RESIDENCE:-

  • The Self occupied benefit (treating property as SOP and claiming GAV as Nil) is available only in respect of one property occupied by the owner for his residence.
  • If a person occupies more than one property for his residence, then the SOP benefit will be granted only in respect of any one property as selected by him and other property/properties will be treated as "Deemed to be let-out". Income from deemed to be let-out property is computed in the same manner as discussed in the case of "Let-out" Property.

AMOUNT OF DEDUCTION FOR INTEREST ON HOUSING LOAN:-

  • The provisions relating to deduction undersection 24(b)section 24(b)in respect of self-occupied property will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post-construction period (if any)
  • However, in the case of self-occupied property, deduction undersection 24(b) cannot exceed Rs.2,00,000 or Rs. 30,000 (as the case may be). If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000:If any of the above condition is not satisfied, then the limit of Rs. 2,00,000 will be reduced to Rs. 30,000. 
    • Capital is borrowed on or after 1-4-1999.
    • Capital is borrowed for the purpose of acquisition or construction (not for repair, renewal, reconstruction).
    • Acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.
    • The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

TAX TREATMENT OF UNREALISED RENT WHICH IS SUSEQUENTLY REALISED:-

  • Any subsequently recovery of unrealized rent shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized (whether or not the assesse is the owner of that property in that year).

TAX TREATMENT OF ARREARS OF RENT:-

composite rent of a house property

TREATMENT OF COMPOSITE RENT BELONGS TO LET OFF BUILDING ALONG WITH OTHER ASSETS:-

  • Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:-
    • In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”
    • In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets.

TREATMENT OF COMPOSITE RENT BELONGS TO LET OFF BUILDING ALONG WITH SERVICE CHARGES:-

  • In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be).

method of computation

FORMAT/ METHOD OF COMPUTATION:-

  • Income chargeable to tax under the head "Income from house property" in the case of a let-out property is computed in the following manner:

Particulars

Amount

Gross annual value

XXXX

Less:- Municipal taxes paid during the year

XXXX

Net Annual Value (NAV)

XXXX

Less:- Deduction under section 24

 

Deduction under section 24(a) at 30% of NAV

Deduction under section 24(b) on account of interest on borrowed capital

(XXXX)

(XXXX)

Income from house property

XXXX

COMPUTATION OF GROSS ANNUAL VALUE (LET OUT THROUGHOUT THE YEAR):-

  • Gross annual value of a property which is let-out throughout the year is determined in the following manner :
    • Step 1:Compute reasonable expected rent of the property
    • Step 2:Compute actual rent of the property
    • Step 3:Compute gross annual value (Gross annual value will be higher of amount computed at step 1 or step 2).

COMPUTATION OF GROSS ANNUAL VALUE (LET OUT FOR PART OF YEAR):-

  • Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the reasonable expected rent than the actual rent so received or receivable (as reduced by the vacant allowance) shall be considered to be the Gross Annual Value of the property.

COMPUTATION OF ACTUAL RENT:-

  • Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent if conditions specified in this regard are satisfied.

(*)Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant,i.e.,rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:

  • The tenancy isbona fide.
  • The defaulting tenant has vacated the property, 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 taxpayer.
  • The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

COMUTATION OF REASONABLE EXPECTED RENT:-

  • Reasonable expected rent will be higher of the following:
    • Municipal value of the property (Note 1); or
    • Fair    rent   of       the     property

COMPUTATION OF INCOME FORM SELF OCCUPIED PROPERTY THROUGHOUT THE YEAR:-

  • A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence. Income chargeable to tax under the head "Income from house property" in case of a self-occupied property is computed in following manner :

Particulars

Amount

Gross annual value

Nil

Less:- Municipal taxes paid during the year

Nil

Net Annual Value (NAV)

Nil

Less:- Deduction under section 24

 

Deduction under section 24(a) @ 30% of NAV

Deduction under section 24(b) on account of interest on borrowed capital

Nil

(XXXX)

Income from house property

XXXX

COMPUTATION OF INCOME FORM SELF OCCUPIED PROPERTY FOR THE PART OF YEAR:-

  • At times a property may be let-out for some time during the year and is self-occupied for the remaining period (i.e., let-out as well as self-occupied during the year). For the purpose of computation of income chargeable to tax under the head "Income from house property", such a property will be treated as let-out throughout the year and income will be computed accordingly.
  • However, while computing the taxable income in case of such a property, actual rent will be considered only for the let-out period.