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House
Property
The
provisions relating to Income from House Property are contained
in Chapter IV A of the Income Tax Act , 1961 (in sections 22 till
27 ). Income received from house property is chargeable to tax as
per Sec. 22 of the said Act. The computation of the annual value
of the property is detailed in section 23 and the deductions permitted
from the Income from House Property are detailed in section 24 of
the Act.
What
constitutes Income from House Property (Sec 22)
The
Income Tax Act creates a legal fiction by which income from house
property means the 'annual value' of any 'building or lands appurtenant
thereto' owned by the assessee. The charge is not on the rent received
but on the inherent potential of the property to generate incomes.
It may be noted that it is only the 'owner' of a property who is
assessed under this head. Thus ,if a tenant, or lessee or a licensee
lets out the property any income received by him will not be taxable
under this head but under the head 'Profits or Gains from Business'
or , as the case may be, 'Income from Other Sources'. The section
however excludes those portions of the property which are used by
the assessee for the purposes of his business and whose profits
are chargeable to tax. The section does not apply to income received
from vacant plots which is taxable under the residuary head - Income
from other sources. Similarly, where an assessee lets out on hire
machinery , plant or furniture along with buildings and the letting
out of the buildings is inseparable from the letting out of such
plant , machinery or furniture the income is taxable either under
the head Profits from Business or Profession or Income from Other
Sources depending on the facts of the case. The term 'House Property'
refers not only to a building but also to a part thereof . Even
if the assessee only owns superstructure built on a leased land
the income from the property is taxable under the head 'Income from
House Property'.
Annual
Value of the property (Sec 23)
The
annual value of the property is deemed to be the higher of the two
sums below :-
- the
sum for which the property might reasonably be let from year to
year ; or
- the
'annual rent' received or receivable by the owner where the property
is let. However if owner has to bear the taxes levied by any local
authority in respect of such property, the taxes if actually paid
are allowed as a deduction from the computation of the annual
value in the year of payment irrespective of the previous year
in which the liability to pay such taxes was incurred by the owner.
The taxes also include service tax wherever levied by the local
authority.
Computation
of annual value in respect of residential properties of the owner
[Sec 23(2)]
- The
annual value of one house or any part thereof is to be taken as
nil if the same or its part is in the occupation of the owner
for his residence for the whole year and if no other benefit is
derived by the owner from the house property. In such case no
deductions as allowable under section 24 can be claimed except
for interest on borrowed capital subject to a maximum of Rs. 15,000/-.
- If
the owner lets out the house or a part thereof for any period
of time during the previous year the annual value of the property
or part has to be calculated for the whole year and the proportionate
annual value of the period for which the house or any part thereof
was in the occupation of the owner for his own residence shall
be deducted from the gross annual value. The assessee in such
cases cannot claim deduction under section 24 in excess of the
annual value so determined.
- If
the assessee occupies more than one house for his residence the
above exemption is applicable only to one such house at the option
of the assessee. The annual value of the other house or houses
shall be computed as if the house or houses are let.
- In
case where the assessee has only one residential house but it
cannot be occupied by the owner by reason of that owing to his
employment, business or profession carried out on at any other
place, he has to reside at that other place in a building not
belonging to him, the annual value of such house shall be taken
to be nil if the house is not actually let and no other benefit
is derived by the owner from such house. The assessee cannot claim
any deduction in such case as allowable under section 24 of the
Act except for interest on borrowed capital subject to a maximum
of Rs. 15,000/-.
Ownership
of the property
An
owner of the property is one who can exercise the rights of the
owner. This is not synonymous with the term interest in a property.
The word owner refers to the owner of the property and not to the
owner of its annual value. The definition of the term owner of house
property has been extended beyond mere legal ownership to also cover
the cases of deemed ownership as under :
- where
an individual transfers any house property to his or her spouse
or a minor child for otherwise than for adequate consideration,
he shall be deemed to be the owner of the house property so transferred.
This does not however applies to cases where the transfer is to
a married daughter or to a spouse in connection with an agreement
to live apart.
- the
holder of an impartible estate is deemed to be the individual
owner of all the properties comprised in the estate.
- where
a Cooperative, Society, Company or other association of persons
allots or leases a building or part thereof to a member under
any house building scheme the member is deemed to be the owner
of that building or part thereof.
- 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,
shall be deemed to be the owner of that building or part thereof.
- a
person who acquires any rights in or with respect to any building
or part thereof by virtue of any such transaction as is referred
to in clause (f) of section 269UA of the Act shall be deemed to
be the owner of that building or part thereof. This does not include
any rights by way of a lease from month to month or for a period
not exceeding one year.
Where
any House Property is owned by two or more persons and their respective
shares are definite and ascertainable , in such a case, the share
of each such person in the income from the property shall be separately
included in his total income.
Deductions
from income from house property (Sec. 24)
The
following deductions are permissible from the annual value of the
house property under the Income Tax Act :-
- One
fifth of the annual value is automatically allowed as a deduction
as allowance for repairs of and collection of rent from the property.
- Insurance
premium paid to insure the property against risk of damage or
destruction.
- The
value of an annual charge on the property not being a capital
charge or a charge voluntarily created by the assessee. The annual
charge means a charge to secure an annual liability and the capital
charge means a charge to secure the discharge of a liability of
a capital nature. The annual charge which is payable outside India
is allowable as a deduction only when tax has been deducted therefrom
as under chapter XVII-B of the Act or where there is a person
in India who may be treated as an agent of the recipient under
section 163 of the Act.
- Amount
of ground rent if applicable.
- Interest
paid on borrowed capital if the same has been used to acquire,
construct, repair, renew, or reconstruct the property. The interest
which is payable outside India is allowable as a deduction only
when tax has been deducted therefrom as under chapter XVII-B of
the Act or where there is a person in India who may be treated
as an agent of the recipient under section 163 of the Act.
- Land
revenue or any other tax levied by the State Government in respect
of such property on actual payment basis.
- Vacancy
allowance is also available as a deduction which is calculated
on proportionate basis for the period or periods when the property
was vacant during the previous year
- Unrealised
rent can be allowed as a deduction if the following conditions
are fulfilled :-
- The
tenancy must be bona fide.
- The
defaulting tenant should have vacated, or steps should have
been taken by the assessee to compel him to vacate the property.
- The
defaulting tenant should not be in possession of any other
property of the assessee.
- The
assessee must either have taken all reasonable steps to institute
legal proceedings for the recovery of the unpaid rent, or
satisfy the assessing officer that legal proceedings would
be useless.
- The
deduction allowed should in no case exceed the income under
the head 'Income from House Property', as computed without
making this deduction.
- If
, after deduction has been allowed in one year, the assessee
realises the unpaid rent in a subsequent year, the amount
so realised will be brought to tax under the head 'Income
from House Property' in the year of receipt, irrespective
of whether the assessee continues to be the owner of that
property in that year or not. No deductions under section
23 or 24 are however allowable in such case in the year of
receipt of the unrealised rent.
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