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  2. 2. TOTAL INCOME  "Total income” u/s 2(45) means the total amount of income referred to in Chapter 5 computed in the manner laid down under this Act i.e. HEADS:  Salaries  Income from house property  Profits and gains of business or profession.  Capital gains  Income from other sources.
  3. 3. CONDITIONS TO BE SATISFIED 1. The property must consist of buildings or lands appurtenant thereto. 2. The assessee must be the OWNER of such house property. 3. The property should not be used by the owner thereof for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.
  4. 4. BASIS OF CHARGE Chargeability [ Section 22 ] The basis of charge is Annual Value of the property However, if let out, then vacancy allowance for the vacant period which means rent received or receivable less local taxes paid actually. 4
  5. 5. PROPERTY CONSISTING OF ANY BUILDING OR LAND APPURTENANAT THERETO  The term “ property” is very wide; but here only House Property is concerned;  Rental income of a vacant plot;  It can be charged under the head “ Profits and gains of business or profession” or under the head” Income from other sources” as the case may be.
  6. 6. BUILDING  Word “ building” is wide enough to include residential house; OR  building let out for office use or for storage or for use as factory, music halls, dance halls, lecture halls, and other public auditorium used for cinema and stage shows.
  7. 7. LAND APPURTENANT THERETO  Approach roads to and from public streets, compounds, courtyards, backyards, playgrounds, kitchen garden etc. attached to and forming part of building.  Non-residential building: car-parking spaces, roads, connecting one department with another department, playgrounds for the benefit of employees, etc.
  8. 8. “OWNER”  The word “owner” means a legal owner but in his own right;  Income from subletting is either ‘business income’ under section 28 or it is from ‘other sources’ under section 56.
  9. 9. DEEMED OWNERSHIP [Section 27]  The following persons though not the legal owners of a property, are deemed to be the owners, for the purposes of sections 22 to 26.  (i) Transfer of property by an individual to his/her spouse, without adequate consideration; but not transferred in connection with an agreement to live apart. Cont….
  10. 10.  Transfer of property by an individual to his or her minor child otherwise than for adequate consideration; but not to a minor married daughter;  The transferor shall remain ‘owner’ for the purposes of rental income.
  11. 11.  (iii) The holder of an impartible estate shall be deemed to be the individual owner of all properties comprised in the estate. The impartible estate is a property which is not legally divisible.  (iv) A member of a co-operative society, to whom a building is allotted or leased as per the scheme.
  12. 12.  (v) A person who is allowed to take or retain the possession of any building or part thereof in part performance under section 53A of the Transfer of Property Act;  (vi) A person who acquires any right for not less than 12 years.
  13. 13. DETERMINATION OF GROSS ANNUAL VALUE  The annual value of any property shall be the sum for which the property might reasonably be expected to be let.  It is neither actual rent nor the municipal valuation of the property. It is something notional rent which could have been derived, had the property been let.
  14. 14. REASONABLE EXPECTED RENT  (a) Municipal valuation of the property How ascertained?  (b) Fair rent of the property. (fetched by a similar property in the same or similar locality);  (c) Standard Rent of the property The higher of (a) and (b) is generally taken as expected reasonable rent.
  15. 15. STANDARD RENT UNDER THE RENT CONTROL ACTS  A landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent under the Rent Control Act [ Shiela Kaushish Vs.CIT – 7 Taxman 1 and Amolak Ram Khosla Vs. CIT[1981] 7 Taxman 51(SC) ]  the annual value of the house belonging to the assessee must be taken to be the standard rent of the house determinable under the provisions of the Rent Act. The revenue will pay the costs of the appeals to the assessee.
  16. 16. Therefore reasonable expected rent will be computed on the basis of three factors, namely:-  (a) Municipal Valuation,  (b) Fair rent of the property; and  (c) Standard rent of the property. The higher of (a) and (b), subject to maximum of (c) is reasonable expected rent.
  17. 17. COMPUTATION IF COMPOSITE RENT IS PAID OR PAYABLE  In case of composite rent of a property as well as certain benefits provided by the landlord;  How to work out the rent attributable to the house property only.
  18. 18. DETERMINATION OF GROSS ANNUAL VALUE  Step 1 – Reasonable expected rent is taken as gross annual value if step 2 and step 3 are not applicable.  Step 2- If rent receivable is more than reasonable expected rent, then rent received or receivable is taken as gross annual value. Cont.
  19. 19.  Step 3- Step 3 is applicable if the following conditions are satisfied:  1.The property is let and was vacant during the whole or any part of the previous year.  2.The actual rent received/receivable is lower than the reasonable expected rent.  3.The decline in the actual rent if caused by the vacancy and not by any other factor ( Circular No.14/2001 dated 12.12.2001 ).
  20. 20.  In case of vacancy for whole year the gross annual value of such a property shall always be nil provided the property was kept ready to be let out; If due to vacancy for part of the year, actual rent received or receivable is lower than expected rent, then such rent is taken as gross annual value. *Actual Rent = Rent received for let out period + Rent Receivable for vacant period – Unrealised Rent.
  21. 21. DEDUCT MUNICIPAL TAXES FROM GROSS ANNUAL VALUE  Net Annual Value= Gross Annual Value less Municipal Taxes actually paid
  22. 22. DEDUCTIONS UNDER SECTION 24 FROM THE NET ANNUAL VALUE  (a) Standard Deduction is a sum equal to 30% of net annual value
  23. 23.  (b) Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital (in case of SOP, it is limited).
  24. 24. INTEREST ON BORROWED CAPITAL [ SECTION 24(b) ]  (1) Deductible on “accrual” basis. It can be claimed on yearly basis, even if the interest is not actually paid during the year.  (2) No deduction is allowed for any brokerage or commission for arranging the loan.  (3) Interest on a fresh loan, taken to repay the original loan, is also allowable as deduction. [ Circular No. 28,dated august 20,1989 ]. Contd.
  25. 25.  It is on the balance outstanding on the last day of each month [Clarification by CBDT vide Circular No.363, dated June 24,1983 ]
  26. 26. ARRANGEMENT TO PAY SALE PRICE IN INSTALLMENTS  If the house property is purchased on installments, comprising of principal and interest thereon;  The unpaid purchase price is treated [deemed] as loan from the seller and the interest paid thereon shall be deducted from rent received u/s 24(b);
  27. 27.  In the case of a let out property interest on borrowed capital is deductible without any ceiling.
  28. 28. (8) Interest paid on borrowed capital for acquisition of plot is also allowable as the word property is used in Section 24(b) and not the word house property. It was held so in the case-- [ CIT Vs. Amrit Lal Adlakha [ 2007] [105 TTJ 271]
  29. 29. INTEREST OF PRE-CONSTRUCTION PERIOD  Interest relating to preconstruction period or before acquisition of property is deductible in five equal annual installments. The year in which house is acquired or constructed shall be the first year.
  30. 30. INTEREST WHEN NOT DEDUCTIBLE [SECTION 25 ]  Interest payable outside India shall not be allowed as deduction  However it is allowable:- a) If the tax is paid or deducted at source; And b) there is a person in India, who may be treated as agent of the recipient.
  31. 31. SELF-OCCUPIED PROPERTY  Annual Value shall be Nil [ Section 23(2)(a) and (b) If:-  (a) it is self occupied; or  (b) it is kept vacant i. due to owner’s employment, business at any other place; where ii. he has to reside in a building not belonging to him and iii. no other benefit is derived by the owner from such house.
  32. 32. WHERE ASSESSEE HAS MORE THAN ONE HOUSE FOR SELF OCCUPATION [ SECTION 23(4) ]  The other house(s) will be deemed to be let out and only one at the option of the assessee shall be treated as self occupied.
  33. 33. DEDUCTIONS ALLOWABLE FOR ONE SELF OCCUPIED HOUSE  Not entitled to the standard deduction of 30%.  Deduction on account of interest (including 1/5th of the accumulated interest of pre- construction period) as follows :- Cont.
  34. 34.  (a) Capital borrowed on or after 01-04-1999 and acquisition or construction of property 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. 2,00,000/- subject to furnishing of certificate , if loan is borrowed before 01.04.1999 than interest allowed for deduction is maximum to Rs. 30,000/-;  Even under new Tax Code passed by Lok Sabha on 27th of August 2010, it has been retained.
  35. 35. TREATMENT OF UNREALISED RENT [EXPLANATION TO SECTION 23(1)]  The unrealized rent shall not be included in the rental income, but subject to the rules made in this behalf to check the misuse of this concession. Cont.
  36. 36. RULE 4 FOR UNREALIZED RENT  (a) The tenancy is bonafide.  (b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property.  (c) The defaulting tenant is not in occupation of any other property of the assessee.  (d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
  37. 37. UNREALIZED RENT RECEIVED SUBSEQUENTLY TO BE CHARGED TO INCOME TAX [ SECTION 25A ]  The amount realised subsequently, if not included in rent earlier, shall be the deemed income in the year of receipt.  In the year of realisation, the assessee may or may not be the owner of the property.
  38. 38. SPECIAL PROVISIONS FOR ARREARS OF RENT RECEIVED  Deduction of 30% shall be allowed;  The assessee may or may not be the owner in the year of receipt.
  39. 39. PROPERTY OWNED BY CO-OWNERS [SECTION 26]  The co-owners having definite and ascertainable share shall be assessed accordingly and not as an AOP.  If property is self occupied by the co- owners the ALV for each shall be nil. Cont.
  40. 40.  However entitled to deduction of interest upto 2 lakhs on borrowed capital.  However if co-owners have let it out, computation shall be made as if it were one person; [no deduction to each] and there after the income shall be apportioned according to their definite share. Cont.
  41. 41. APPLICABILITY OF SECTION 22 IN CERTAIN TYPICAL SITUATIONS House property in a foreign country  (a) Rent from a property in foreign country received by resident assessee is taxable.  (b) However in the case of Non-resident it shall be taxable only if it is received in India.
  42. 42. DISPUTED OWNERSHIP  If ownership is under dispute in a court of law, the decision rests with the Income-tax Department;  The department has prima facie the power to decide whether the assessee is the owner and is chargeable to tax under section 22, without waiting for judicial judgment of any suit filed in respect of the property – Keshardeo Chamaria (1937) 5 ITR 246 ( Cal.).
  43. 43. HIRING OF COMPLEX: PROPERTY+SERVICES  Property and other facilities e.g., a furnished paying guest accommodation, a well equipped theatre, a safe deposit vault.  Income in such cases may be assessed as income from business.
  44. 44. THANK YOU