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INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY
ANNUAL VALUE OF PROPERTY CONSISTING OF BUILDING AND LAND APPURTENANT OF WHICHTHE ASSESSEE IS THE OWNER IS CHARGEABLE TO TAX.
THE PROPERTY SHALL NOT INCLUDE SUCHPORTION THAT MAY BE OCCUPIED FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE.
INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY
BUILDING AND HOUSE PROPERTY NOT DEFINED IN
THE ACT.TO BE UNDERSTOOD IN THEIR ORDINARY
DICTIONARY MEANING.
BUILDING TO INCLUDE BUILDING OCCUPIED FOR RESIDENCE, LET OUT FOR OFFICE, STORAGE, WAREHOUSING, FACTORY.
LAND DENOTES THAT SUCH LAND ENHANCE THEUTILITY OF THE PROPERTY AND THEREFORE BECOME PART OF BUILDING OR PROPERTY.
INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTYASSESSEE SHOULD BE THE OWNER OF THE HOUSE PROPERTY.
IT IS IMMATERIAL WHETHER THE OWNER IS IN POSSESSION AND ENJOYMENT OF THE PROPERTY ORHAS LET IT OUT.
AN ASSESSEE WHO TRANSFERS HOUSE PROPERTY OTHERWISE THAN FOR ADEQUATE CONSIDERATION
TO SPOUSE OR MINOR CHILD IS DEEMED TO BE THE OWNER. (TULSIDAS KILACHAND VS CIT, 42 ITR, SC
1961)
INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY
ASSESSMENT OF INCOME FROM HOUSE PROPERTY
IS ONLY IN REPECT OF THE INCOME OF THEPROPERTY IN THE PREVIOUS YEAR.
WHERE OWNER RECEIVES COMPOSITE RENT, IT HAS TO BE SPLIT UP INTO HOUSE PROPERTY INCOME AND OTHER SOURCE.
ANNUAL VALUE
STEP 1
FAIR RENTWHICHEVER IS HIGHER WHICHEVER
IS LOWER 1 OR 2WHICHEVER IS HIGHER
MUNICIPAL VALUE
STANDARD RENT
STEP 2 ACTUAL RENT
STEP 3 ACTUAL RENT AFTER VACANCY
1OR3
LOWER
PROFORMA FOR CALULATING HOUSE PROPERTY INCOME-SELF OCCUPIED
GROSS ANNUAL VALUE NILLESS: MUNICIPAL TAX NILNET ANNUAL VALUE NILLESS: DEDUCTIONS
STANDARD DEDUCTION @ 30% NIL INTEREST ON CAPITAL XXX XXXTAXABLE INCOME XXX
PROFORMA FOR CALULATING HOUSE PROPERTY INCOME-LET OUT PROPERTY
GROSS ANNUAL VALUE XXXLESS: MUNICIPAL TAX XXXNET ANNUAL VALUE XXXLESS: DEDUCTIONS
STANDARD DEDUCTION @ 30% XXX INTEREST ON CAPITAL XXX XXXTAXABLE INCOME XXX
INTEREST ON BORROWED CAPITAL
CAPITAL IS BORROWED FOR THE PURPOSE OF PURCHASE, CONSTRUCTION, REPAIR, RENEWAL OR RECONSTRUCTION OF THE HOUSE PROPERTY.
INTEREST IS DEDUCTIBLE ON ACCRUAL BASIS. IT CAN BE CLAIMED AS DEDUCTION EVEN IF INTEREST IS NOT ACTUALLY PAID DURING THE YEAR.
INTEREST ON UNPAID INTEREST IS NOT DEDUCTIBLE.
NO DEDUCTION FOR BROKERAGE OR COMMISSION FOR ARRANGING THE LOAN.
INTEREST ON FRESH LOAN TAKEN TO REPAY THE ORIGINAL LOAN IS DEDUCTIBLE (CIRCULAR NO 28 DT 20.08.1969.)
INTEREST FULLY DEDUCTIBLE IN CASE OF LET OUT PROPERTY. IN CASE OF SELF OCCUPIED PROPERTY INTEREST DEDUCTIBLE UPTO RS 1,50,000 IF LOAN IS BORROWED AFTER 1-4-1999 (RS 30,000 IF BEFORE 1-4-99). WHERE LOAN IS BORROWED FOR REPAIRS DEDUCTION RESTRICTED TO RS 30,000.
INTEREST ON BORROWED CAPITAL
THE ACQUISITION OR CONSTRUCTION SHOULD BE COMPLETED WITHIN 3 YEARS FORM THE END OF FINANCIAL YEAR IN WHICH CAPITAL IS 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 SUCH ACQUISITION OR CONSTRUCTION.
THERE IS NO STIPULATION REGARDING THE DATE OF COMMENCEMENT OF CONSTRUCTION.
INTEREST CAN BE CLAIMED AS A DEDUCTION FROM THE PREVIOUS YEAR IN WHICH THE CONSTRUCTION OR ACQUISITION IS COMPLETED.
WHAT ABOUT INTEREST DURING PRE-CONSTRUCTION STAGE OR PRE ACQUISITION STAGE?????
PRE CONSTRUCTION PERIOD INTEREST IS DEDUCTIBLE IN FIVE EQUAL ANNUAL INSTALMENTS.
PRE CONSTRUCTION PERIOD
STARTS ON
DATE OF BORROWING THE
LOAN
ENDS ON
DATE OF REPAYMENT OF LOAN
31ST MARCH IMMEDIATELY
PRECEEDING THE YEAR OF
CONSTRUCTION
WHICHEVER IS EARLIER
CASE STUDY 1 – ANNUAL VALUE
House 1
House 2
MUNICIPAL VALUE 105 105
FAIR RENT 107 107
STANDARD RENT 88 135
ACTUAL RENT FOR THE ENTIRE PERIOD
110 112
STEP 1 88 107
STEP 2 110 112
GROSS ANNUAL VALUE 110 112
CASE STUDY 2 – ANNUAL VALUE
House 1
House 2
MUNICIPAL VALUE 60 140
FAIR RENT 65 150
STANDARD RENT 59.5 120
ACTUAL RENT FOR THE ENTIRE PERIOD 72 144
LOSS DUE TO VACANCY 6 120
STEP 1 59.5 120
STEP 3 66 24
GROSS ANNUAL VALUE 66 24
CASE STUDY 3 – Pre-construction period interestX takes a loan of Rs 40,000 @ 15% p.a for constructing a house on
June 10, 2006. Construction of the house is completed on January 20,
2012. Date of repayment of loan 16th January 2017.STARTS ON
DATE OF BORROWING THE LOAN
10-06-2006
ENDS ON
DATE OF REPAYMENT OF LOAN
16-01-2017
31ST MARCH IMMEDIATELY
PRECEEDING THE YEAR OF CONSTRUCTION
31-03-2011
WHICHEVER IS EARLIER31-03-2011
Preconstruction period interest from 10-06-2006 to 31-03-2011
on Rs 40,000 @ 15% i.e., Rs 28,500 deductible in 5 equal annual
instalments from 2011-2012.
CASE STUDY 4X takes a loan of Rs 40,000 @ 15% p.a for constructing a house on
June 10, 2006. Construction of the house is completed on January 20,
2012. Date of repayment of loan 31st October 2009.STARTS ON
DATE OF BORROWING THE LOAN
10-06-2006
ENDS ON
DATE OF REPAYMENT OF LOAN
31-10-2009
31ST MARCH IMMEDIATELY
PRECEEDING THE YEAR OF CONSTRUCTION
31-03-2011
WHICHEVER IS EARLIER31-10-2009
Preconstruction period interest from 10-06-2006 to 31-10-2009
on Rs 40,000 @ 15% i.e., Rs 20,000 deductible in 5 equal annual
instalments from 2011-2012.
CASE STUDY 5
Particulars Amount
MUNICIPAL VALUE 1,20,000
FAIR RENT 1.00,000
ACTUAL RENT PER MONTH 11,000
MUNICIPAL TAXES ACCRUED 12,000
MUNICIPAL TAX PAID 6,000
INTEREST ON CAPITAL BORROWED 7,500
NATURE OF OCCUPATION LET OUT
ANSWER
PARTICULARS LET OUT
GROSS ANNUAL VALUE 1,32,000
LESS: MUNICIPAL TAX 6,000
NET ANNUAL VALUE 1,26,000
LESS: STANDARD DEDUCTION @ 30% INTEREST ON LOAN
37,8007,500
TAXABLE INCOME 80,700
CASE STUDY 6
Particulars House 1 (SOP)
House 2LET OUT
MUNICIPAL VALUE 60,000 3,00,000
FAIR RENT 85,000 3,20,000
STANDARD RENT 65,000 3,60,000
ACTUAL RENT 3,00,000
MUNICIPAL TAX PAID 6,000 30,000
INTEREST ON CAPITAL BORROWED. LOAN BORROWED ON 10-04-2004.
1,41,600 2,75,000
NATURE OF OCCUPATION SELF LET OUT
ANSWER
PARTICULARS SELF OCCUPIE
D
LET OUT
GROSS ANNUAL VALUE NIL 3,20,000
LESS: MUNICIPAL TAX NIL 30,000
NET ANNUAL VALUE NIL 2,90,000
LESS: STANDARD DEDUCTION @ 30% INTEREST ON LOAN
NIL
1,41,600
87,000
2,75,000
TAXABLE INCOME (1,41,600)
(72,000)
TOTAL TAXABLE INCOME (2,13,600)
DEEMED LET OUT PROPERTY
IF THE ASSESSEE USES MORE THAN ONE HOUSE PROPERTY FOR HIS SELF OCCUPATION THEN ONE OF THE HOUSE AT THE CHOICE OF THE ASSESSEE WILL BE TAKEN AS A DEEMED LET OUT PROPERTY.
BENEFIT OF SELF OCCUPATION (ZERO ANNUAL VALUE) AVAILABLE ONLY TO ONE HOUSE PROPERTY.
VALUE OF DEEMED LET OUT PROPERTY BASED ON STEPS 1, 2 AND 3.
CASE STUDY
X HAS OCCUPIED 2 HOUSES FOR HIS RESIDENTIAL PURPOSE, PARTICULARS OF WHICH ARE AS FOLLOWS
House 1 House 2
MUNICIPAL VALUE 60,000 30,000
FAIR RENT 85,000 32,000
STANDARD RENT 65,000 36,000
MUNICIPAL TAX 10% 10%
INTEREST ON CAPITAL (BORROWED ON 1-4-2002)
1,45,000
20,000
ANSWER
House 1SOP
House 2
DLO
GROSS ANNUAL VALUE Nil 32,000
MUNICIPAL TAX Nil 3,000
NET ANNUAL VALUE Nil 29,000
DEDUCTION
STANDARD DEDUCTION @ 30%
Nil 8,700
INTEREST ON CAPITAL 1,45,000 20,000
(1,45,000)
300
(1,44,700)
ILLUSTRATION NITIN DRAWS A SALARY OF RS 10,00,000 P.A. HE RESIDES IN HIS OWN HOUSE PURCHASED ON 01-05-2008. HE HAS BORROWED A LOAN OF RS 50 LAKH FOR THE HOUSE SITUATED AT MUMBAI. HE HAS REPAID DURING THE YEAR A SUM OF RS 3,70,000 TOWARDS THE LOAN (PRINCIPAL RS 1,25,000 AND INTEREST RS 2,45,000). DETERMINE THE TOTAL INCOME.
SALARY 10,00,000
HOUSING INTEREST (1,50,000)
GROSS INCOME 8,50,000
DEDUCTIONS
80C – PRINCIPAL PAID – HOSUING LOAN 1,00,000
TOTAL INCOME 7,50,000
Deepak Kapoor v ITO
Delhi tribunal
We find that neither the AO nor the learned CIT(A) recorded any findings as
to which are the properties in the instant case which fall within the purview
of section 23(2) of the Act. In these circumstances, we consider it fair and appropriate to vacate the findings of the learned CIT(A) and restore the matter to the file of the AO with the directions to identify the properties in the instant case which fall within the purview of section 23(2) of the Act
and allow the assessee option mentioned in s.23(4) of the Act to choose any one of these as self occupied property. Thereafter, the assessment may
be completed in accordance with law after determining ALV of the said
property in the light of various judicial pronouncements, including those referred to above. The assessee is directed to place all the relevant facts before the
AO and co-operate in expeditious completion of assessment. The AO is free to undertake any independent enquires, if found necessary. With these observations, ground nos. 1 & 2 in the appeal are disposed of. Since the issues are restored to the file of the AO, the ground no.3 relating to levy
of interest under section 234B of the Act does not survive for our
adjudication at this stage.
Shri Saif Ali Khan v Asst CIT
Mumbai TribunalSection 23(1) clearly provides that taxes levied by any local authority in respect of the property shall be deducted in determining the annual value of the property. Therefore, municipal taxes and society
charges paid by assessee in respect of the let out property were allowable while computing the annual letting value of
the property under section 23. This will be over and above the deduction under section 24.
K.S.Kamalakannan v Asst CIT
Chennai TribunalThe original loan taken by the father and subsequent loan taken by assessee from EBSL was not for the purpose of construction or acquisition, etc., of the
house property in question. Hence, the loan taken from HSBC for repayment of earlier loan does not fall under the category of loan for discharging the liability of the loan taken for acquisition or construction etc. of the
property'. Accordingly, the interest whether paid or payable, is
not allowable under the provision of Section 24(1)(vi) as it stood at the relevant time.
Kesoram Industries Ltd v CIT
Chennai High courtNot justified. Income from property belonging to the assessee and occupied by the employees of sister concern should be treated as an income from house property rather than business income chargeable under section 28.
Asst CIT V Rahul chaudary
Delhi TribunalNot rightly so. By paying borrowed money to R the assessee did not acquire any interest over the property but only the vacant possession and, therefore, the interest on borrowed capital could not be allowed to be accepted.