Welcome to presentation on Taxability of House Property

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Welcome to presentation on Taxability of House
Property
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Income from House Property
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What consist of House Property?

• Property must be consist of any building or
  land appurtenant thereto.

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Conditions for Taxability

• Property must be in the ownership of the
  Assessee
• Property should not be use in the business of
  Assessee

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Is location of property relevant?

• No, it does not matter that Property is situated
  in India or outside India.
• In both of the cases Property shall be taxable
  in the head of Income from House Property.

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Deemed Owner

• Transfer to spouse or to a minor child who is
  not a married daughter
• Holder of impartible estate
• Member of co-operative society

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Deemed Owner

• Person in possession of property.
• (Sec 53A)
• In case of HUF which have not been partitioned
  to members, the Karta of HUF
• Person having right in a property for
• a period not less than 12 years.

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Computation of Taxable Income from House Property

• Gross Annual Value xxxxx
• Less Municipal Tax xxxxx
• Net Annual Value xxxxx
• Less Deduction u/s 24
• (i) S.D. of 30 of Annual Value xxxxx
• (ii) Interest on Loan xxxxx
• Taxable Income from H.P. xxxxx

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What is Gross Annual Value?

• Sec 23(1)(a)
• Sum for which Property might reasonably be
  expected to be let from year to year.
• It is something like notional rent which could
  have been derived, had the property been let.

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Let out House Property

• Where Rent Control Act Apply
• Step-A
• Higher of the Fair Value and Municipal Value
• In any case above amount can not exceed the
  Standard Rent
• Step-B
• Higher of the actual rent received or receivable
  and Annual value calculated in step-A

• Where Rent Control Act does not apply
• Step-A
• Higher of the Fair Value and Municipal Value
• Step-B
• Higher of the actual rent received or receivable
  and Annual value calculated in step-A

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Self occupied House Property

• If assessee have a single house then Annual
  value of such house shall be NIL

• If assessee have more than one house then
  valuation of one of them shall be at NIL and
  valuation of other houses shall be as they are
  let out.

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Partly let out House Property

• Valuation of self occupied portion shall be at
  NIL.
• Valuation of let out portion as fully let out
• But if assessee let out the property for some
  period in the year and occupied for the remaining
  period then there is no deduction for the
  occupied period.

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Rules for the unrealized rent

• If owner of Property cannot realize the rent
  from the tenant then such rent received rent
  shall be deemed the GAV.
• But after fulfilling some conditions.

• Tenancy is bona fide
• Tenant has vacated, or steps have been taken to
  compel him
• Tenant is not occupation of any other property
  of the assessee
• All reasonable steps have been taken to
  institute legal proceedings for the recovery of
  the unpaid rent

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Subsequent recovery of unrealized rent

• Such recovery shall be taxable in the previous
  year of receipt of unrealized rent irrespective
  of the ownership if
• a deduction has been claimed and allowed in
  respect of such unrealized rent
• and no deduction u/s 24 shall be given on this
  recovery

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Special provisions for arrears of rent received

• Where the assessee is the owner of House
  Property
• and received arrears of rent from such property,
  not charged to income tax in any previous year
• then such amount, after deducting 30 of such
  amount, shall be deemed to be income from House
  Property
• irrespective of the ownership of the House
  Property

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Deductions from Net Annual Value
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Standard deduction u/s 24(i)

• In case of let out House Property
• 30 of the NAV
• This deduction is notional deduction
  irrespective of actual expenditure for
  realization of rent

• In case of self occupied House Property
• There will no deduction as NAV is NIL

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Deduction of interest on loan

• In case of let out House Property
• All the interest paid or due

• In case of self occupied House Property
• Deduction is limited to Rs.30,000/- for each
  co-owner separately

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Maximum Deduction of interest

• In case of self occupied House Property Maximum
  amount of deduction of interest is Rs. 1,50,000/-
  if the following conditions are satisfied
• 1. Loan is taken on or after 01.04.1999
• 2. House Property was acquired/constructed within
  three years from the end of Financial Year in
  which loan was taken

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Interest attributable to prior construction/acquis
ition period

• Interest from the date of borrowing
• Till the end of the previous year prior to the
  previous year in which the house is completed
• Interest of the previous year in which
  construction was completed will be deducted as
  normal interest

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Interest on loan taken for repayment of loan

• Such interest shall be allowed as deduction
• But interest on interest shall not be allowed

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Income from the head Capital Gain
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Capital Asset

• House Property is a Capital Asset if it is Owned
  by the assessee
• If holding period of house property is more than
  36 months then it is Long Term Capital Asset
  otherwise Short Term Capital Asset

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Chargeability of capital gain

• On the transfer of Capital asset in the previous
  year being house property owned by the assessee
• If the sale consideration is more than the
  acquisition value of the house property

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What is transfer?

• Transfer includes-
• Sale, exchange or relinquishment
• The extinguishment of any right in the asset
• Compulsory acquisition thereof under any law
• Conversion into stock in trade

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Computation of Capital Gain

• Sale proceeds xxxxx
• Less transfer expenses xxxxx
• Less indexed cost of acquisition xxxxx
• Less indexed cost of improvement xxxxx
• Capital Gain/Loss xxxxx

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Special provision for full value of Consideration
Sec. 50 C

• Where consideration received as a result of the
  Transfer of a land or building or both,
• -is less than the value adopted by stamp
  valuation authority of State Government
• -for the purpose of payment of stamp duty
• -then such value adopted shall be deemed to be
  full value of the consideration received.

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Special provision for full value of Consideration
Sec. 50 C

• Assessee may claim before any Assessing Officer
  that such value adopted exceeds the fair market
  value of the property on the date of transfer.
• The Assessing Officer may refer the valuation
  of property to valuation officer
• and if such value is less than value adopted by
  the A.O. then
• such value shall be taken for the computation of
  Capital Gain

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Section 54

• Exemption of capital gain on transfer of
  residential house property
• Conditions for avail exemption-
• 1. Owner must be an individual or HUF
• 2. There should be transfer of a House Property
  which is Long Term Capital Asset
• 3. Income from such house should be taxable in
  the head Income from house property

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Section 54

• 4. Assessee has purchase another residential
  House Property one year before or two years
• after the date on which transfer took place
• 5. Or has within three years after that date
  constructed

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What will be the amount of exemption?

• Exemption will be provide to the maximum
• amount invested into another house property

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If assessee fails to invest the amount

• If assessee fails to invest the amount of
  capital gain into another residential house
  property before the due date of filling the
  return of income
• Then he may deposit the amount into Capital Gain
  account scheme 1988
• The amount deposited shall be deemed to be cost
  of another house property

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Withdrawal of exemption

• Exemption granted on the capital gain shall be
  withdrawn if-
• the new house property purchased/constructed is
  transferred within three years of
  purchase/construction
• Amount deposited in the capital gain scheme 1988
  is not utilized for purchase/construction in the
  stipulated time period

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Can amount deposited be used for any purpose

• No, the amount deposited cant be used other
  than for purchase/construction of house property
• If amount is used for any other purpose then
  such amount shall be treated Short Term Capital
  Gain for that previous year and liable to tax

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Section 54F

• Exemption of capital gain on transfer of capital
  asset other than house property
• If an assess transfer a Long Term Capital asset
  other than house property
• and purchase house property then he can avail
  exemption of this section

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Conditions for availing exemption

• Assessee must be an individual or HUF
• Transferred capital asset is not a residential
  house property
• Capital asset is a Long Term Capital Asset
• On the date of transfer assessee has not more
  than one house
• Assessee has purchase another House Property one
  year before or two years after the date on which
  transfer took place

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Amount of exemption

• Exemption from Capital Gain shall be avail in
  the proportion of amount of sale consideration
  invested in the new House Property
• In other words amount of exemption shall be
• Capital gain amount invested
• sale consideration

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Other conditions are same

• All other conditions of section 54 are applied
  to this section as they applied in section 54

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Some cases related to House Property

1. Incase of sale of land and building, capital gain
   is bifurcated between long term capital gain and
   short term capital gain
2. Construction of new floor in the same building
   shall be entitled to exemption under section 54
3. Release of share by one co-owner in the favor of
   another co-owner shall be deemed purchase by
   another co-owner
4. Amount of capital gain partly invested in
   purchase of new house property and partly amount
   used in construction of new floor is allowed

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Wealth Tax Act,1957
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Charge of Wealth Tax (Sec.3)

• Wealth Tax shall be charged on the net wealth on
  the corresponding valuation date
• of every Individual, HUF and company
• at the rate of 1 of the amount by which net
  wealth exceeds Rs.15 lakhs

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What is Asset?

• Section 2(ea)(i)
• Asset means-
• Any building or land appurtenant thereto,
  whether used for
• - residential purpose or
• - commercial purpose (if it is vacant or let
  out) or
• - for the purpose of maintaining of guest house

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Not to be included

• A House meant exclusive for residential purpose
• A house which is allotted by a company to an
  employee or officer or whole time director,
  having a gross salary of less than Rs.5 lakhs
• Any house for residential or commercial purpose
  which form part of stock in trade

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Not to be included

• Any house used for the purpose of any business
  or profession carried on by him
• Any residential property that has been let out
  for a minimum period of 300 days in the previous
  years
• Any property in the nature of commercial
  establishment or complexes

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Taxability of farm house

• Farm house shall be included in Asset if it is
• situated within 25 km from the local limit of
• any municipality or a cantonment board

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Computation of Net Wealth

• Aggregate value of all assets wherever located
  belonging to the assessee
• Aggregate value of all asset required to be
  included in the net wealth of the assessee
• Less Exemption u/s 5 of Wealth Tax Act
• Less Debts owed by the assessee on the
  valuation date relating to asset included in his
  wealth

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Exemption u/s 5 of Wealth Tax Act

• Wealth Tax shall not be payable on the
  following
• 1. Any property held under trust or other legal
  obligation for any public purpose of a charitable
  or religious nature in India sec.5(i)
• 2. The interest of the assessee in the
• co-parcenary property of any HUF sec.5(ii)

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Exemption u/s 5 of Wealth Tax Act

• 3. Any building in occupation of Ruler being a
  building which was decleared as his official
  residence by the Central Govt. under Merged State
  Order sec.5(iii)
• 4. One house (whether residential or commercial
  or whether let out or self occupied) or part of
  a house or a plot of land of 500 sq. metres or
  less sec.5(vi)

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Determination of value of Immovable Property

• Valuation of Property as per
• Rules 3, 4 and 5 of Part B of
• Schedule III xxxxx
• Add Adjustment for unbuilt Area
• As per Rule 6 xxxxx
• Less Adjustment for unearned
• increase in the value of land xxxxx

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Valuation of Property

• Valuation of property shall be done as per
• rules 3,4 and 5 of part B of schedule III
• which is divided in 5 steps

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Step-1 Determination of actual rent

• Actual rent received or receivable
• Add
• 1. Taxes in respect of the property agreed to be
  borne by the tenant
• 2. 1/9th of actual rent received or receivable
  where the repairs are to be borne by the tenant
• 3. 15 interest on the deposit received reduced
  by interest actually paid by the tenant (only if
  such deposit is for more than three months)

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Step-1 Determination of actual rent

• 4. Non refundable deposit spread equally over
  the period of the lease
• 5. Value of any perquisite or benefit received by
  the assessee for leasing out the property
• 6. Any obligation of the owner met by the tenant

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Step-2 Determination of annual rent

• Where property is let out for the entire year
• Actual Rent

• Where property is let for part of the year
• Actual rent12
• No. of month for which property was let out

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Step-3 Determination of Gross Maintainable Rent
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Step-3 Determination of Gross Maintainable Rent
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Step-4 Determination of Net Maintainable Rent

• Gross Maintainable Rent xxxxx
• Less 15 of GMR xxxxx
• Less Municipal Taxes xxxxx
• (on paid basis whether
• by owner or tenant)
• NET MAINTAINABLE RENT xxxxx

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Step-5 Valuation of Property

• CASE-1
• Where property has been acquired or constructed
  on or before 31.03.1974

• CASE-2
• Where property has been acquired or constructed
  after 31.03.1974

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Case-1

• Property constructed on freehold land
• Property constructed on Lease hold Land and
  unexpired Period of Lease is 50 years or more
• Where unexpired Period of Lease is less than 50
  years

• NMR 12.5
• NMR 10
• NMR 8

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Case-2

• Value of the property shall be higher of the
  following
• 1. NMR Capitalization Factor (12.5/10/8)
• 2. Cost of acquisition /construction cost of
  improvement

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Remedy to assessee

• Valuation of any one house property which is
  constructed/acquired after 31.03.1974
• and used for his own residential purpose
  throughout the year
• and whose cost of acquisition/construction
  cost of improvement does not exceed

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Remedy to assessee

• -Rs.50 lakhs in case house is situated in
• Delhi/Mumbai/Kolkata/Chennai
• -Rs.25 lakhs in case of other cities
• shall be the NMR Capitalization Factor
  (12.5/10/8)

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Adjustment for unbuilt area of plot of land as
per Rule-6

• If unbuilt area gt Specified area
• then there shall be addition in the value of
• property as per Rules 3, 4 5 of
• as per of default

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What is percentage of default?

• Unbuilt Area - Specified Area
• Aggregate Area

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What is Specified Area?

• Specified Area is in the sense of permissible
• unbuilt area
• Therefore if Unbuilt Area gt Specified Area,
• then addition shall be made as per Rule 6

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Specified Area mentioned in Wealth Tax Act

• Where property situated in
• Delhi, Mumbai, Kolkata, Chennai
• Specified citied
• Other cities

• 60 of aggregate area
• 65 of aggregate area
• 70 of aggregate area

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Addition in the value of property as per Rule -6

• of default
• Upto 5
• 5 to 10
• 10to 15
• 15 to 20
• Above 20

• Addition
• NIL
• 20 of value as per rules 3 4 5
• 30 of value
• 40 of value
• FMV of property (Rule-8)

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Adjustment for unearned increased in value of
land as per Rule-7

• If the property is constructed on a land taken
  on lease from Govt. Authority
• and Govt. Authority is entitled to recover a
  specified of unearned increase in the value of
  land at the time of transfer of property
• then, the value determined as per Rules 3, 4, 5
  6 shall be reduced by the least of the
  following

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Adjustment for unearned increased in value of
land as per Rule-7

• Amount of unearned increase liable to be
  recovered by the Govt. Authority
• 50 of the value as per Rules 3, 4, 5 6

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What is unearned increase?

• Unearned increase means the difference between
  the
• value of such land as determined by the Govt.
  Authority for the purpose of calculating such
  increase
• and the lease premium paid or payable to the
  Govt. Authority for lease of land

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Rule-8

• Notwithstanding contained in Rules 3 to 7 the
  value of the property shall be estimated to be
  the price which, in the opinion of the Assessing
  Officer,
• it would fetch if sold in the open market on the
  valuation date.

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Cases, where Rule-8 apply

1. Where the A.O. is of the opinion that it is not
   practicable to the apply Rules 3 to 7
2. Where the difference between the unbuilt area and
   the specified area exceeds 20 of the aggregate
   area
3. Where the property is constructed on a leasehold
   land and the lease expires within a priod of less
   than 15 years and the deed of lease does not give
   an option for the renewal of the lease

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Thanks to all of you