1332348993taxability of House Property

Welcome to presentation on Taxability of
House Property
Prepared by: CA. V.K. SAINI

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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 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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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 Partly let out House Property

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Let out House Property
Where Rent Control Act Where Rent Control Act
Apply does not apply
Step-A Step-A
Higher of the Fair Value and Higher of the Fair Value and
Municipal Value Municipal Value
In any case above amount
can not exceed the
Standard Rent
Step-B Step-B
Higher of the actual rent
received or receivable and Higher of the actual rent
Annual value calculated in received or receivable and
step-A Annual value calculated in
step-A
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Self occupied House Property
If assessee have a single If assessee have more
house then Annual than one house then
value of such house valuation of one of
shall be NIL 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 Tenancy is bona fide
realize the rent from the Tenant has vacated, or steps
tenant then such rent have been taken to compel
received rent shall be him
deemed the GAV. Tenant is not occupation of
But after fulfilling some any other property of the
conditions. 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 In case of self

House Property occupied House
Property
30% of the NAV There will no deduction
This deduction is as NAV is NIL
notional deduction
irrespective of actual
expenditure for
realization of rent

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Deduction of interest on loan
In case of let out In case of self
House Property occupied House
Property
All the interest paid or Deduction is limited to

due 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/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 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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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 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 Where property is let
out for the entire year for part of the year
Actual Rent 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. 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
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 CASE-2
Where property has Where property has

been acquired or been acquired or
constructed on or constructed after
before 31.03.1974 31.03.1974

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Case-1
Property constructed NMR * 12.5
on freehold land
Property constructed NMR * 10
on Lease hold Land and
unexpired Period of
Lease is 50 years or
more
Where unexpired NMR * 8
Period of Lease is less
than 50 years

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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, 60% of aggregate area
Chennai
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 Addition
Upto 5% NIL
5% to 10% 20% of value as per
rules 3 4 & 5
10%to 15% 30% of value
15% to 20% 40% of value
Above 20% 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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1332348993taxability of House Property

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1332348993taxability of House Property

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Available Formats

Welcome to presentation on Taxability of

Prepared by: CA. V.K. SAINI

Income Tax Act,1961 Wealth Tax Act,1957

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Property should not be use in the

Prepared by: CA. V.K. SAINI

In both of the cases Property shall be taxable in

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

In case of HUF which have not been

Person having right in a property for

Prepared by: CA. V.K. SAINI

Sum for which Property might reasonably

It is something like notional rent which

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

a deduction has been claimed and allowed

and no deduction u/s 24 shall be given on

Prepared by: CA. V.K. SAINI

then such amount, after deducting 30% of such

irrespective of the ownership of the House

Prepared by: CA. V.K. SAINI

Standard Deduction u/s24(i) Interest on Loan u/s24(ii)

Prepared by: CA. V.K. SAINI

In case of let out In case of self

Prepared by: CA. V.K. SAINI

All the interest paid or Deduction is limited to

Prepared by: CA. V.K. SAINI

In case of self occupied House Property

Till the end of the previous year prior to

Interest of the previous year in which

Such interest shall be allowed as

But interest on interest shall not be

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

If holding period of house property is

Prepared by: CA. V.K. SAINI

If the sale consideration is more than the

Prepared by: CA. V.K. SAINI

Prepared by: CA. V.K. SAINI

-is less than the value adopted by stamp

-for the purpose of payment of stamp duty

-then such value adopted shall be deemed to be

Prepared by: CA. V.K. SAINI

The Assessing Officer may refer the valuation of

and if such value is less than value adopted by the A.O.

Prepared by: CA. V.K. SAINI

Section 54 Section 54F

Prepared by: CA. V.K. SAINI

Exemption of capital gain on transfer of

Conditions for avail exemption-

4. Assessee has purchase another residential

5. Or has within three years after that date

Prepared by: CA. V.K. SAINI

Exemption will be provide to the

amount invested into another house

Prepared by: CA. V.K. SAINI