Welcome to presentation on Taxability of House Property Prepared by: CA. V. K. SAINI (9999772095) 1
Taxability of House Property Income Tax Act, 1961 Wealth Tax Act, 1957 Prepared by: CA. V. K. SAINI (9999772095) 2
Income Tax Act, 1961 Income From House Property Income from the head Capital Gain Prepared by: CA. V. K. SAINI (9999772095) 3
Income from House Property Prepared by: CA. V. K. SAINI (9999772095) 4
What consist of House Property? Property must be consist of any building or land appurtenant thereto. Prepared by: CA. V. K. SAINI (9999772095) 5
Conditions for Taxability Property must be in the ownership of the Assessee Property should not be use in the business of Assessee Prepared by: CA. V. K. SAINI (9999772095) 6
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. ” Prepared by: CA. V. K. SAINI (9999772095) 7
Deemed Owner Transfer to spouse or to a minor child who is not a married daughter Holder of impartible estate Member of cooperative society Prepared by: CA. V. K. SAINI (9999772095) 8
Deemed Owner Person in possession of property. (Sec 53 A) 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. Prepared by: CA. V. K. SAINI (9999772095) 9
Computation of Taxable Income from House Property Gross Annual Value Less: Municipal Tax Net Annual Value Less: Deduction u/s 24 (i) S. D. of 30% of Annual Value (ii) Interest on Loan Taxable Income from H. P. Prepared by: CA. V. K. SAINI (9999772095) xxxxx xxxxx 10
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. Prepared by: CA. V. K. SAINI (9999772095) 11
Calculation of Annual Value Where Rent Control Act apply. Where Rent Control Act does not apply Prepared by: CA. V. K. SAINI (9999772095) 12
Types of House Property Let out House Propertys Self occupied House Property Prepared by: CA. V. K. SAINI (9999772095) Partly let out House Property 13
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 Prepared by: CA. V. K. SAINI (9999772095) 14
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. Prepared by: CA. V. K. SAINI (9999772095) 15
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. Prepared by: CA. V. K. SAINI (9999772095) 16
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 Prepared by: CA. V. K. SAINI (9999772095) 17
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 Prepared by: CA. V. K. SAINI (9999772095) 18
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 Prepared by: CA. V. K. SAINI (9999772095) 19
Deductions from Net Annual Value Deduction u/s 24 Standard Deduction u/s 24(i) Interest on Loan u/s 24(ii) Prepared by: CA. V. K. SAINI (9999772095) 20
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 Prepared by: CA. V. K. SAINI (9999772095) 21
Deduction of interest on loan In case of let out House Property In case of self occupied House Property All the interest paid or due Deduction is limited to Rs. 30, 000/- for each coowner separately Prepared by: CA. V. K. SAINI (9999772095) 22
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 Prepared by: CA. V. K. SAINI (9999772095) 23
Interest attributable to prior construction/acquisition 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 Prepared by: CA. V. K. SAINI (9999772095) 24
Interest on loan taken for repayment of loan Such interest shall be allowed as deduction But interest on interest shall not be allowed Prepared by: CA. V. K. SAINI (9999772095) 25
Income from the head Capital Gain Prepared by: CA. V. K. SAINI (9999772095) 26
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 Prepared by: CA. V. K. SAINI (9999772095) 27
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 Prepared by: CA. V. K. SAINI (9999772095) 28
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 Prepared by: CA. V. K. SAINI (9999772095) 29
Computation of Capital Gain Sale proceeds Less: transfer expenses Less: indexed cost of acquisition Less: indexed cost of improvement Capital Gain/Loss Prepared by: CA. V. K. SAINI (9999772095) xxxxx xxxxx 30
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. Prepared by: CA. V. K. SAINI (9999772095) 31
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 Prepared by: CA. V. K. SAINI (9999772095) 32
Exemption from capital gain Section 54 F Prepared by: CA. V. K. SAINI (9999772095) 33
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” Prepared by: CA. V. K. SAINI 34 (9999772095)
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 Prepared by: CA. V. K. SAINI (9999772095) 35
What will be the amount of exemption? Exemption will be provide to the maximum amount invested into another house property Prepared by: CA. V. K. SAINI (9999772095) 36
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 Prepared by: CA. V. K. SAINI (9999772095) 37
Withdrawal of exemption Exemption granted on the capital gain shall be withdrawn ifthe 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 Prepared by: CA. V. K. SAINI (9999772095) 38
Can amount deposited be used for any purpose No, the amount deposited can’t 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 Prepared by: CA. V. K. SAINI (9999772095) 39
Section 54 F 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 Prepared by: CA. V. K. SAINI (9999772095) 40
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 Prepared by: CA. V. K. SAINI (9999772095) 41
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 Prepared by: CA. V. K. SAINI (9999772095) 42
Other conditions are same All other conditions of section 54 are applied to this section as they applied in section 54 Prepared by: CA. V. K. SAINI (9999772095) 43
Some cases related to House Property 1. 2. 3. 4. Incase of sale of land building, capital gain is bifurcated between long term capital gain and short term capital gain Construction of new floor in the same building shall be entitled to exemption under section 54 Release of share by one co-owner in the favor of another co-owner shall be deemed purchase by another co-owner Amount of capital gain partly invested in purchase of new house property and partly amount used in construction of new floor is allowed Prepared by: CA. V. K. SAINI (9999772095) 44
Wealth Tax Act, 1957 Prepared by: CA. V. K. SAINI (9999772095) 45
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 Prepared by: CA. V. K. SAINI (9999772095) 46
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 Prepared by: CA. V. K. SAINI (9999772095) 47
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 Prepared by: CA. V. K. SAINI (9999772095) 48
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 Prepared by: CA. V. K. SAINI (9999772095) 49
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 Prepared by: CA. V. K. SAINI (9999772095) 50
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 Prepared by: CA. V. K. SAINI (9999772095) 51
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)] Prepared by: CA. V. K. SAINI (9999772095) 52
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)] Prepared by: CA. V. K. SAINI (9999772095) 53
Determination of value of Immovable Property Valuation of Property as per Rules 3, 4 and 5 of Part B of Schedule III Add: Adjustment for unbuilt Area As per Rule 6 Less: Adjustment for unearned increase in the value of land Prepared by: CA. V. K. SAINI (9999772095) xxxxx 54
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 Prepared by: CA. V. K. SAINI (9999772095) 55
Step-1 Determination of actual rent 1. 2. 3. Actual rent received or receivable Add: Taxes in respect of the property agreed to be borne by the tenant 1/9 th of actual rent received or receivable where the repairs are to be borne by the tenant 15% interest on the deposit received reduced by interest actually paid by the tenant (only if such deposit is for more than three months) Prepared by: CA. V. K. SAINI (9999772095) 56
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 Prepared by: CA. V. K. SAINI (9999772095) 57
Step-2 Determination of annual rent Where property is let out for the entire year Where property is let for part of the year Actual Rent Actual rent*12 No. of month for which property was let out Prepared by: CA. V. K. SAINI (9999772095) 58
Step-3 Determination of Gross Maintainable Rent Where property is not let out Annual value as assessed by the Local Auth. Otherwise Fair Market Rent Prepared by: CA. V. K. SAINI (9999772095) 59
Step-3 Determination of Gross Maintainable Rent Where property is let out then higher of Annual Rent Annual Value as assessed by Local Auth. Prepared by: CA. V. K. SAINI (9999772095) 60
Step-4 Determination of Net Maintainable Rent Gross Maintainable Rent Less: 15% of GMR Less: Municipal Taxes (on paid basis whether by owner or tenant) NET MAINTAINABLE RENT Prepared by: CA. V. K. SAINI (9999772095) xxxxx 61
Step-5 Valuation of Property CASE-1 CASE-2 Where property has been acquired or constructed on or before 31. 03. 1974 Where property has been acquired or constructed after 31. 03. 1974 Prepared by: CA. V. K. SAINI (9999772095) 62
Case-1 Property constructed on freehold land Property constructed on Lease hold Land 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 Prepared by: CA. V. K. SAINI (9999772095) 63
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 Prepared by: CA. V. K. SAINI (9999772095) 64
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 : Prepared by: CA. V. K. SAINI (9999772095) 65
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) Prepared by: CA. V. K. SAINI (9999772095) 66
Adjustment for unbuilt area of plot of land as per Rule-6 If unbuilt area > Specified area then there shall be addition in the value of property as per Rules 3, 4 & 5 of as per % of default Prepared by: CA. V. K. SAINI (9999772095) 67
What is percentage of default? Unbuilt Area - Specified Area Aggregate Area Prepared by: CA. V. K. SAINI (9999772095) 68
What is Specified Area? Specified Area is in the sense of permissible unbuilt area Therefore if Unbuilt Area > Specified Area, then addition shall be made as per Rule 6 Prepared by: CA. V. K. SAINI (9999772095) 69
Specified Area mentioned in Wealth Tax Act Where property situated in Delhi, Mumbai, 60% of aggregate area Kolkata, Chennai Specified citied 65% of aggregate area Other cities 70% of aggregate area Prepared by: CA. V. K. SAINI (9999772095) 70
Addition in the value of property as per Rule -6 % of default Upto 5% 5% to 10%to 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) Prepared by: CA. V. K. SAINI (9999772095) 71
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 : Prepared by: CA. V. K. SAINI (9999772095) 72
Adjustment for unearned increased in value of land as per Rule-7 n n Amount of unearned increase liable to be recovered by the Govt. Authority 50% of the value as per Rules 3, 4, 5 & 6 Prepared by: CA. V. K. SAINI (9999772095) 73
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 Prepared by: CA. V. K. SAINI (9999772095) 74
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. Prepared by: CA. V. K. SAINI (9999772095) 75
Cases, where Rule-8 apply 1. 2. 3. Where the A. O. is of the opinion that it is not practicable to the apply Rules 3 to 7 Where the difference between the unbuilt area and the specified area exceeds 20% of the aggregate area Where the property is constructed on a leasehold land 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 Prepared by: CA. V. K. SAINI (9999772095) 76
Prepared by: CA. V. K. SAINI (9999772095) 77
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