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Taxability of House Property
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Taxability of House Property
Income Tax Act,1961
Wealth Tax Act,1957
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Income Tax Act,1961
Income From House Property
Income from the head Capital Gain
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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 cooperative 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
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.
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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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Calculation of Annual Value
Where Rent Control Act apply.
Where Rent Control Act does not apply
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Types of House Property
Let out House Propertys
Self occupied House Property
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Partly let out House Property
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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
Deduction u/s24
Standard Deduction u/s24(i)
Interest on Loan u/s24(ii)
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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
In case of self
occupied House
Property
All the interest paid or
due
Deduction is limited to
Rs.30,000/- for each coowner 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/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
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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 includesSale, 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
Less: transfer expenses
Less: indexed cost of acquisition
Less: indexed cost of improvement
Capital Gain/Loss
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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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Exemption from capital gain
Section 54
Section 54F
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Section 54
Exemption of capital gain on transfer of
residential house property
Conditions for avail exemption1. 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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(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
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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 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
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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
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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.
2.
3.
4.
Incase of sale of land and 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
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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 meansAny 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
Add: Adjustment for unbuilt Area
As per Rule 6
Less: Adjustment for unearned
increase in the value of land
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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 rent*12
No. of month for which
property was let out
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Step-3 Determination of Gross
Maintainable Rent
Where property is not let out
Annual value as assessed by the Local Auth.
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Otherwise Fair Market Rent
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Step-3 Determination of Gross
Maintainable Rent
Where property is let out then higher of
Annual Rent
Annual Value as assessed by Local Auth.
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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
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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
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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 > 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 > 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
60% of aggregate area
Specified citied
65% of aggregate area
Other cities
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%
10%to 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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