Income earned from a house is taxable under a separate head – ‘Income from House Property’. The relevant provisions related to tax under this head are provided under Section 22 to Section 27 of the Income Tax Act. In order to be taxable, an assessee must be the owner of the property. Further, the property should consist of buildings or land adjacent. The property should not be used for the purpose of any business or profession by the assessee. It is to be noted that the property must either be used for or capable of being used for renting out and deriving a rental income. In case of a house, it is the annual value of the property and not the actual rent that is taxable. There is a specified procedure to determine the annual value of the property. Annual value means the capacity of the property to earn an income that may be more than the actual rent received by the owner of the property.
The highest of municipal value or fair rental value of a similar property in a similar locality is treated as taxable income. However, in case the higher of the two exceeds the standard rent of the property, determined in accordance with the Rent Control Act, the standard rent will be treated as taxable rental value of the property.
In respect of let-out properties, the annual value is determined as highest of:
Municipal. rental value of the propertyFair rental value of a similar property in a similar locality Rent actually received by the assessee for the property in a given previous year However, if the Rent Control Act is applicable in the locality where the property is situated, the taxable value cannot exceed the standard rent fixed in accordance with the Rent Control Act, except where the rent actually received exceeds the standard rent. From the gross annual value, certain deductions are available to an assessee to arrive at the net annual value.
These include
Under Section 23
The municipal taxes paid by the owner of the property are allowed as a deduction from the annual value.
Under Section 24
These expenses are allowed as deductions from the amount arrived at after deducting municipal taxes from the annual rental value: Repairs and collection charges: 30 percent of the net adjusted annual rental value. This is irrespective of whether the assessee has actually incurred the expenses or not. However, if the repairs are borne by the tenant, this deduction is not allowed to the http://www.zameen-zaidad.com/invester-guide.aspx owner of the property .
Interest on borrowings: Interest paid or payable on money borrowed for purchase, construction, repair, renewal or reconstruction of a house is allowed as a deduction. In case of a self-occupied property treated as such, the maximum deduction will be restricted to Rs 30,000. If borrowings are for the acquisition or construction of a house after April 1, 1999, Rs 1.5 lakhs will be deductible. If the house has been acquired or constructed with borrowed money, the interest for the period prior to the previous year in which the property had been acquired or constructed will be deductible in five equal annual instalments starting from the previous year in which the house has been acquired or constructed. There are no other deductions towards ‘income from house property’.
Self-occupied property
In case an individual or Hindu Undivided Family (HUF) has only one self-occupied residential property, that property will be treated as selfoccupied. There will be no taxable income in respect of such a property. The condition is that the owner should not have let-out the property for any time during the year, nor earned any benefits from the property . In case the assessee owns more than one property, the exemption applies to only one self-occupied house. The owner has the discretion to choose any of the properties as selfoccupied. The deemed income from all other properties is taxable, even if they are self-occupied and no rental income is being derived from them. Although not actually let-out, they will be deemed to be let-out, and notional rental value will be treated as taxable income in the hands of the owner.
Courtesy times property dtd 10/10/2010
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