Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Thursday, December 28, 2017

INCOME FROM HOUSE PROPERTIES COMPUTATION AND DEDUCTIONS ( AS AMENDED BY FINANCE ACT,2017)

 As per Section 22 of Income Tax Act, 1961 Income from House property shall be taxable if income from property fulfils the following conditions:
a) Income from property where property means any building or land appurtenant thereto;
b)  Such property should be in the name of  the taxpayer i.e tax payer should be the owner of such property;
c) Such Property is not used for own business or profession. Here property owned by partner can be used by a firm as both are separate entities but in proprietary business one can not book expenses of rent paid and take rental income under the head of house property.
 DETERMINATION OF  INCOME FROM HOUSE PROPERTY :
Income from a house property shall be determined in the following manner:
The Gross Annual Value or Let Out Value is Income which is higher of following:
a) Expected rent. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to maximum of standard rent;
b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy
Deductions against Rental Income:
-          Municipal Taxes paid ( Accrued taxes but not paid are not allowed. So if taxes are to be borne by the owner and actually paid during the year are allowed)
-          Deduction @30% of Net Annual Value under Section 24(a) ( Gross Rental Value less Municipal Taxes is Net Annual Value so after the vacancy allowance the Annual Let Out value less taxes paid is Net Annual Value )
-           Interest on Borrowed Capital as per Section 24(b)

Interest on Borrowed Capital as per Section 24(b):
a) For let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction is allowed as deduction.
 b) For Self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property is allowed upto Rs.2 lakhs if
i) capital is borrowed on or after 01-04-1999 and
ii) acquisition or construction of house property is completed within 5 years.

c) For Self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property is deductible up to  Rs.30000 only. Deduction for interest on borrowed capital shall be limited to Rs. 30,000 in following circumstances if capital is borrowed :
a) Before 01-04-1999 for purchase or construction of a house property.
b) On or after 01-04-1999 for the re-construction, repairs or renewals of a house property;
c) On or after 01-04-1999 but construction of house property is not completed within five years from end of the previous year in which capital was borrowed.

Prior Period Interest or interest during construction period:
 Any interest for the period prior to the year of acquisition/ construction of the house property is allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed but with the overall ceiling amount of interest on borrowed capital under Section 24(b)
Deduction for interest on housing loan under Section 80EE
Deduction of up to Rs 50,000 is allowed to an Individual for interest payable on loan taken for the purpose of acquisition of a house property subject to following conditions:
 a)  Loan sanctioned by Financial institution during the Fin.year 2016-17 and does not exceed Rs.35 Lakhs.
 b)  The value of residential property does not exceed Rs 50,00,000;
 d)  The assessee does not own any residential house property on the date of sanction of loan;
 e)  Where deduction under Section 80EE is allowed, then no deduction shall be allowed in respect of such interest under any other provision.
 COMPUTATION OF  INCOME FROM HOUSE PROPERTY AND AMOUNT OF DEDUCTION OF INTEREST ON BORROWED CAPITAL: 
One Self Occupied House Property or House property could not be occupied by the owner due to employment or business carried on at any other place :
-          No Deduction on account of Municipal Taxes or Standard Deduction or Vacancy Allowance as Gross Annual Value is NIL.
-          Deduction for interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as the case may be as detailed above.
More than one-self occupied property
-          Only one property on the choice by the taxpayer will be considered as self-occupied house property and
-           All other properties shall be deemed to be let-out for the purpose of computation of income under the head house property.
A self-occupied property let-out for the part of the year :
-          The house will be taken as let-out property and
-          No concession shall be available for the duration during which the property was self-occupied
One part of the property is let-out and other part is used for self-occupied purposes :
-           Each part of the property shall be considered as separate property and
-           Income of each part will be computed separately.
Let out property:
Income : Gross Annual Value to be computed as per provisions of Section 23(1) which is higher of following:
a) Expected rent. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to maximum of standard rent;
b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy
Deductions :
-          Municipal Taxes actually paid if to be borne by owner.
-          Standard Deduction @ 30% of Net Annual Value i.e Gross Annual Value less Municipal Taxes Paid
-          Entire amount of interest paid or payable on borrowed capital shall be allowed as deduction. Pre-construction interest shall be allowed as deduction in 5 annual equal installments (Subject to certain conditions)
Composite Rent:
a)      If letting out of Building is with movable assets and transaction is inseparable:
            If income from letting out of building along with movable assets which may include          machinery, furniture or fixtures, etc. and transaction is inseparable then the composite rent is not taxable under Income from House property but taxable as Profits and gains        from business or profession / Income from other sources.
b)      If letting out of Building is with movable assets and transaction is separable:
-          Income from letting out of building is taxable as Income from house property and
-          Income from letting out of other assets is taxable as Profits and gains from business or profession/ Income from other sources.

Deduction for unrealized rent in case of Income from House Property:
-          Unrealized rent is rental income which could not be realized from the tenant by the owner and in such case a deduction from actual rent received or receivable upto the amount of unrealized rent is allowed if the following conditions are satisfied:
a) The tenancy is bona fide;
b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
c) The defaulting tenant is not in occupation of any other property of the same owner;
d) The owner of the property has initiated legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
Income from Arrears of rent or recovery of unrealized rent:
In case the arrears of rent received or any subsequent recovery of unrealized rent is taxable as Income from house property in the year of such actual recovery even if such owner of such property is not owner in the year of recovery and accordingly the standard deduction @30% of amount received is also allowed.

Income in case of property owned by co-owners:
-          In case house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately in the proportion of ownership and other deductions also as allowed under Income from House property as per law.
-          In case house property is owned by co-owners and their share in house property are not definite, the income of the property shall be assessed as that of an Association of persons.
Income in case of Deemed owners:
            Income from house property is taxable in the hands of its owner but sometimes legal         owner is not considered as the real owner of the property and any other person is            considered as the deemed owner of the property then such person is chargeable to tax on      income earned from such house property:
1.      A transferor is a deemed owner
-  In case any house property is transferred otherwise than for adequate consideration to his or her spouse and such transfer is not as per an agreement to live apart,
- In case property is transferred to a minor child not being a married daughter.
2. The holder of an estate shall be deemed to be the individual owner of all the properties comprised in the estate if such estate is not divisible;
3. A member of a co-operative society, company or any other association of persons if such property to whom allotment or lease is done under a house building scheme.
4. A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract and shall be deemed to be the owner of that building or part thereof;
5. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof shall be deemed to be the owner of that building or part thereof.

 RESTRICTION ON SET OFF OF HOUSE PROPERTY INCOME:
As amended by Finance Act, 2017
-          In case the net result of computation of income under the head Income from House Property is negative or in other words there is loss from House property then such loss can be set-off against any other income but restricted to Rs. 2 Lakh in any assessment year from Assessment Year 2018-19 onwards.

-          However, the loss which couldn't be set off can be carried forward for set-off in subsequent years. It can be carried forward for 8 Assessment years for set-off.

1 comment:

  1. You can rectify your mistakes by submitting IRS Form 1040X, Amended U.S. Singular Income Tax Return. Amended Tax Return

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