Income From House Property (Section 22-27) ebook / Notes

| November 16, 2016 | 4 Comments

Get Income From House Property (Sec 22-27) Notes / ebook:

In previous post we have given Income From Salaries (Sec 15-17) Notes / ebookAgricultural Income Notes for CA & CMA Students – Latest,  and Income Tax Act 1961, notes for CA & CMA students. Today we are giving Income From House Property Ebook / Notes for CA & CMA students.

                                                INCOME FROM HOUSE PROPERTY (Sec 22-27) Latest 

Conditions for Chargeability
Property should consist of any building or land appurtenant thereto.
Assessee must be the owner of the property
The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.
Meaning of composite rent
The owner of a property may sometimes receive rent in respect of building as well as –
  1. Other assets like say, furniture, plant and machinery.
  2. For different services provided in the building, for E.g. – Lifts, Security,etc
Where composite rent includes rent of building and charges for different services (lifts, security etc.), the composite rent is has to be split up in the following manner –
  • The sum attributable to use of property is to be assessed under section 22 as income from house property;
  • The sum attributable to use of services is to charged to tax under the head “Profits and gains of business or profession” or under the head “Income from other sources”.

Various Sections in Income From House Property is Explained Below:

Determination of Annual Value [Section 23]
This involves three steps:
Step 1 – Determination of Gross Annual Value (GAV).
Step 2 – From GAV computed in step 1, deduct municipal tax paid by the owner during the previous year.
Step 3 – The balance will be the Net Annual Value (NAV), which as per the Income-tax Act is the annual value.
Deemed to be let out property [Section 23(4)]
(a)    Where the assessee owns more than one property for self-occupation, then the income from any one such property, at the option of the assessee, shall be computed under the self-occupied property category and its annual value will be nil. The other self-occupied/unoccupied properties shall be treated as “deemed let out properties”.

(b)    This option can be changed year after year in a manner beneficial to the assessee.Notional income instead of real incomeThus, under this head of income, there are circumstances where notional income is charged to tax instead of real income. For example –Where the assessee owns more than one house property for the purpose of self-occupation, the annual value of any one of those properties, at the option of the assessee, will be nil and the other properties are deemed to be let-out and income has to computed on a notional basis by taking the ALV as the GAV.In the case of let-out property also, if the ALV exceeds the actual rent, the ALV is taken as the GAV.Property taxes (Municipal taxes)

(1) Property taxes are allowable as deduction from the GAV subject to the following two conditions:

(a)    It should be borne by the assessee (owner); and
(b)    It should be actually paid during the previous year.

Deductions in Income From House Property

Deductions from Annual Value [Section 24]

Deductions u/s 24

Serial No Particulars Amount or Percentage Deduction
1 Standard deduction 30% of Net Annual Value
2 Property acquired/constructed after 1st April, 1999 with borrowed capital (deduction is allowed only where such acquisition or construction is completed within 3 years from the end of the financial year in which capital was borrowed) Rs. 1,50,000
3 In all other cases except in point 2. Rs. 30,000
4 In case of let out property Full deduction of interest on borrowed capital.

(i)    There are two deductions from annual value. They are –

  • 30% of NAV; and
  • interest on borrowed capital
  1. Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction.
  2. Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.
  3. Interest relating to the year of completion of construction can be fully claimed in that year irrespective of the date of completion.
  4. Interest payable on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed, can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.
(ii) Deduction in respect of one self-occupied property where annual value is nil (1) In this case, the assessee will be allowed a deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under –
  • Where the property has been acquired, Actual interest payable subject constructed, repaired, renewed or reconstructed to maximum of ` 30,000. with borrowed capital before 1.4.99.
  • Where the property is acquired or constructed Actual interest payable subject with capital borrowed on or after 1.4.99 and such to maximum of ` 1,50,000, if acquisition or construction is completed within 3 certificate mentioned in (2) years from the end of the financial year in which below is obtained. the capital was borrowed.
  • Where the property is repaired, renewed or Actual interest payable subject reconstructed with capital borrowed on or after to a maximum of ` 30,000. 1.4.99.
  1. For the purpose of claiming deduction of ` 1,50,000 the assessee should furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property.
  2. The ceiling prescribed for one self-occupied property as above in respect of interest on loan borrowed does not apply to a deemed let-out property.
  3. Deduction under section 24(b) for interest is available on accrual basis. Therefore interest accrued but not paid during the year can also be claimed as deduction.
  4. Interest on unpaid interest is not deductible.
Computation of Annual Value.
Step 1
Compare Fair Rent with Municipal Value
Which ever is higher is considered as Fair Rent
Step 2
Rent of Step 1 with Standard Rent
Which ever is lower is considered as Fair Rent
Step 3
Compare Fair Rent Determined Above With Actual Rent
  • Actual Rent is higher than Fair Rent = Actual Rent is Annual Value
  • Actual Rent is lower than Fair Rent (Actual Rent does not include unrealised Rent. If Conditions Of Rule 4 are Satisfied)
Actual Rent is less Than Fair Rent Because of Vacancy Actual Rent = Annual Value
Actual Rent is less Than Fair Rent Because of any other factor Fair Rent Rent = Annual Value
Gross Annual Value (GAV) (A )
Less:
Municipal taxes (paid by the owner during the previous year)B:
Net Annual Value (NAV) = (A-B)
C  Less: Deductions  u/s 24
(a) 30% of NAV
D (b) Interest on borrowed capital
(actual without any ceiling limit)
Income from house property (C-D-E)
F
Interest on borrowed capital
Interest on loan taken for acquisition or construction of house on or after 1.4.99 and same was completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of  1,50,000 (including apportioned pre-construction interest).In case of loan for acquisition or construction taken prior to 1.4.99 or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of` 30,000.
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