Q.1. Write a note on incomes chargeable to tax under the head House Property.
Explain the meaning of the term 'House Property'.
Chargeability of income under the head House Property (Section 22)
Income from letting out of house property is chargeable to tax under the head House Property
If the income is from sale or purchase of house property, it will be taxable under the head
Capital Gains, however if the sale or purchase is part of a business, income is taxable
under the head Business/Profession
MEANING OF HOUSE PROPERTY
The term house property shall include not only the buildings but also the lands
appurtenant thereto i.e. the term house property shall include even any open land which is
part and parcel of the building.
Mr. Bhagawan Priyadarshi has one big house and it includes vast open area within its boundaries. The house has been let out at a rent of Rs. 1,00,000 p.m., out of which rent of Rs. 25,000 p.m. is attributable to the open land. In this case, entire rental income is
taxable under the head house property.
Further, house property includes all types of house properties i.e. residential houses, shops, godowns. cinema building, workshop building, hotel buildings etc.
INCOME FROM LETTING OUT OF LAND
If any person has let out only land, which is not essential part of any building, income is taxable under the head other sources.
Mr. Saurabh has one big piece of land which is let out for arranging exhibitions or for the purpose of marriage parties etc.. rent received or receivable is taxable under the head other sources.
INCOME FROM BUSINESS OF LETTING OUT HOUSE PROPERTY
If any person is holding house property as stock-in-trade for the purpose of letting out, income shall be taxable under the head house property, even if it is his business.
ABC Ltd. is holding 500 flats for the purpose of letting out, income shall be taxable under the head house property.
Income from hotel business/paying guest accommodation/warehouse
If any person has any hotel building which has been let out, income from such hotel building shall be taxable under the head house property but if he is running the hotel business or he is running the business of providing paying guest accommodation, income shall be taxable under the head Business/Profession. Similarly, if he is engaged in the business of warehousing, income is taxable under the head Business/Profession.
In order to compute income under the head house property, the house properties shall he divided into
Houses which are let out throughout the year Sec 23(1)(a)/(b)
Houses which are partly let out and partly vacant or houses lying vacant
throughout the year Sec 23(l)(c)
Self occupied house property
(a) One house, which is self occupied throughout the year or unoccupied property. Sec 23(2).
(b) More than one house which is self occupied Sec 23(4).
(c) House property in the business or profession of the assessee Sec 22
Houses which are partly let out and partly self occupied and may or may not be vacant Sec 23(3).
House property which is divided into different portions.
Q.2. Write a note on computation of Annual Value, in case of
(i) A House which is Partly Let Out and Partly Vacant or
(ii) A House Vacant throughout the year. Answer:
HOUSE LYING VACANT FOR SOME PERIOD/VACANT THROUGHOUT THE YEAR Section 23(1)(c)
If the rent received/receivable is less than the expected rent owing to vacancy, in that case rent received/receivable shall be gross annual value, e.g. If expected rent is Rs. 20,000 p.m. and rent received/receivable is Rs. 15,000 p.m. and there is vacancy for 5 months, in this case GAV shall be the expected rent because even if there was no vacancy, still rent received/receivable was less than expected rent.
If in this case rent received/receivable is Rs. 25,000 p.m. and it is vacant for 5 months, gross annual value shall be the rent received/receivable because if there was no vacancy, rent R/R would have been higher than expected rent accordingly in the given case, R/R is lower than expected rent owing to vacancy.
If the house is vacant throughout the year, its GAV shall be nil.
Q.3. Write a note on deductibility of Municipal Taxes.
DEDUCTIBILITY OF MUNICIPAL TAXES PROVES TO Section 23(1)
Every local authority (municipality) is authorised to charge a tax from the owner of the houses (in order to meet the cost of maintaining the city or town) and such tax is called municipal tax, such tax shall be allowed to be deducted from gross annual value while computing net annual value. If the municipal tax is due but not paid, in that case deduction is not allowed.
During the previous year 2013-14 municipality has levied taxes Rs. 20,000, but the assessee has paid Rs. 15,000. In this case, amount allowed to be deducted is Rs. 15,000. In the next year, municipality has levied taxes of Rs. 45,000 but the assessee has paid Rs. 55,000 which includes Rs. 5,000 for the earlier year and Rs. 5,000 for the subsequent year. In this case, amount allowed to be deducted shall be Rs. 55,000.
IF THE MUNICIPAL TAX HAS BEEN PAID BY THE TENANT, IT WILL NOT BE ALLOWED TO BE DEDUCTED.
Municipal taxes shall include –
1. House Tax
2. Water Tax
3. Fire Tax
4. Scavenging Tax
5. Sewerage Tax
6. Education Cess
7. General Tax etc.
Q.4. Write a note on deduction under section 24(b).
DEDUCTION FOR INTEREST ON THE CAPITAL BORROWED Section 24(b)
Under section 24(b), where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital, shall be allowed to be deducted while computing income under the head
house property. Only simple interest is allowed. Further it is allowed on due basis (i.e. deduction is allowed even if the interest has not been paid.)
INTEREST FOR PRE-CONSTRUCTION PERIOD
Where the property has been acquired or constructed with borrowed capital, the interest, it any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, shall also be deducted in equal instalments for the said previous year and for each of the four immediately succeeding previous year.
If a house has been constructed on 01.07.2013 by taking a loan on 01.11.2009. preconstruction period shall be from 01.11.2009 to 31.03.2013 i.e. the period prior to the previous year in which the house was purchased or constructed.
FRESH LOAN RAISED TO REPAY ORIGINAL LOAN
Where a fresh loan has been raised to repay the original loan and the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Assessing Officer, the interest paid on the second loan would also be
allowed as a deduction under section 24. [CBCT Circular No. 28 dt. 20.08.1969.]
AMOUNTS NOT DEDUCTIBLE FROM INCOME FROM HOUSE PROPERTY [Section 25]
Notwithstanding anything contained in section 24. any interest chargeable under this Act which is payable outside India on which tax has not been paid or deducted, in respect of which there is no person in India who may be treated his an agent shall not be deducted in computing the income chargeable under the head “Income from house property".
Q.5. Write a note on Composite Rent.
COMPOSITE RENT AND ITS TAXABILITY
Sometimes a house property may be let out along with some facilities like furniture, air conditioner, generator, security staff, lighting etc and the assessee may charge the rent combined for the house properly as well as the facilities, such rent is called composite rent. In such cases, rent charged for house property shall he considered to be the rent received or receivable for the house property and the remaining amount of the rent shall be considered to be income under the head income from other sources, but after deducting all the expenditures incurred in connection with the facility.