Rental income from a property being building or land appurtenant thereto of which the taxpayer is owner is charged to tax under the head 'Income from house property'. This is taxed in the hands of the owner of the property.
Rental income of a person other than the owner cannot be charged to tax under the head 'Income from house property'. Hence, rental income received by a tenant from sub-letting cannot be charged to tax under the head 'Income from house property'. Such income is taxable under the head 'Income from other sources' or profits and gains from business or profession, as the case may be.
The composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head 'Income from house property' and charges for various services will be charged to tax under the head 'Profits and gains of business and profession' or 'Income from other sources' (as the case may be).
If letting out of building and letting out of other assets are non-separable (i.e., both the lettings are composite and not separable), entire rent is taxed under the head 'Profits and gains of business or profession' or 'Income from other sources'.
Gross annual value of a property which is let-out throughout the year is determined in the following manner:
Reasonable expected rent will be higher of the following:
Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent* is to be deducted from actual rent if conditions specified in this regard are satisfied.
* Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:
Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to be the gross annual value.
(If however, the Rent Control Act is applicable, the G.A.V. is the standard rent or rent received, whichever is higher).
Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the reasonable expected rent than the actual rent so received or receivable (as reduced by the vacant allowance) shall be considered to be the Gross Annual Value of the property.
It may be noted that if the let out property was vacant for whole or any part of the previous year and owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause (a) above, then the amount actually received/receivable shall be taken into account while computing the G.A.V. If any portion of the rent is unrealisable, (condition of unrealisability of rent are laid down in Rule 4 of I.T. Rules) then the same shall not be included in the actual rent received/receivable while computing the G.A.V.
Net Annual Value (N.A.V.) is the G.A.V. less the municipal taxes paid by the owner. Only municipal taxes paid by the owner during the year can be deducted. Hence, municipal taxes due but not paid during the year cannot be deducted or taxes borne by the tenant cannot be deducted.
Interest is classified as pre-construction period interest and post construction period interest.
Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed). Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:
Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed. Thus, total deduction available to the taxpayer under section 24(b) on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).
Deduction under section 24(b) for interest accrued on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property is available upto ₹ 2 lacs.
Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:
A self-occupied property means a property owned by the taxpayer which is occupied throughout the year by the owner for the purposes of his own residence and is not actually let out during the whole or any part of the year. Thus, a property not occupied by the owner for his residence cannot be treated as a self occupied property. However, there is one exception to this rule. If the following conditions are satisfied, then the property can be treated as self-occupied and the annual value of a property will be 'Nil', even though the property is not occupied by the owner throughout the year for his residence:
In case of a self occupied property, the limit for deduction is ₹ 2,00,000 (w.e.f. 01.04.2015. Earlier ₹ 150,000/-) or ₹ 30,000, as the case may be.
If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000/- :
As per Section 80EE of the Income-tax Act, deduction of up to ₹ 50,000 is allowed to an Individual towards interest on loan taken for acquisition of a residential house property.
However, the deduction is allowed subject to following conditions:
It may be noted that the above provision shall apply whether or not the assessee remains the owner of the property in the year of receipt of such arrears.
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