House Property Income
Tax is on the annual value of the house property after allowing
certain deductions. House Property consists of any building, flat,
shop etc., and the land attached to the building.
Computation of income from Self Occupied property
Income is computed after giving certain deductions from the annual
value of the property.
* Computation of annual value of self occupied property
The annual value of Self occupied property is taken as NIL if
the property is fully utilized for own residential stay during the
year or if the property is not actually occupied as owner and is also
not let out. If a property is let out for only a part of the year,
proportionate annual value will be calculated.
* Entitled deductions for self occupied property
The only entitled deduction is interest, if any payable, on loan
taken for the purchase or construction of the house property. The
maximum deduction on this account is Rs.30,000/-; However, for
properties acquired or constructed between the 1st April 1999 and the
1st April 2003 out of borrowed funds, maximum limit is Rs. 1,50,000/-
Computation of income from let out property
Income is computed after giving certain deductions from the net annual
value of the let out property.
* Computation of net value of let out property
For let out properties the gross annual value will be the
greater of the following three amounts:
o Municipal value of the property
o Actual rent received during the year
o Fair rent i.e. rent of similar properties in the same or
similar locality.
Out of the gross annual value, municipal taxes actually paid
during the year has to be deducted to arrive at the net annual value.
* Entitled deductions for let out property
The deductions available for computing House Property Income are:
o 30% of the net annual value for repair and maintenance and
rent collection expenses for the property
o Interest on money borrowed to build, buy or repair the property
Ownership of property
Besides owning property in own name, a person is deemed as owner in
following three cases:
* As transferor of the property to spouse or minor child for
inadequate or no consideration
* As holder of an impartible estate or a property in part
performance of a contract under the Transfer of Property Act
* As share holder of a co-operative society or a company, which
entitles to hold any property
Capital Gains : If any Capital Asset is sold or transferred, the
profits arising out of such sale are taxable as capital gains in the
year in which the transfer takes place.
Definition of Capital Gains : Capital Asset means all moveable or
immovable property except trading goods, personal effects,
agricultural land other than within municipal areas or within 8
kilometers from it wherever notified and gold bonds. Jewelry and
ornament are not personal effects and their sale will attract capital
gains.
Distinction between short term and long-term asset
Capital Assets are of two types i.e., long term and short term.
Long-term capital assets are assets held for more than 36 months
before they are sold or transferred. In case of shares, debentures and
mutual fund units the period of holding required is only 12 months.
Different rates of tax apply for gains on transfer of the long term
and short-term capital assets. Gains on short-term capital asset are
taxed as regular income.
Computation of Capital Gains
Capital gains are to be computed by deducting the following three
amounts from the consideration money received on transfer of the
asset.
* The actual cost of the asset or its estimated market value as on
1.4.81, if acquired earlier
* The cost of improvement, if any, for the asset
* Expenses incurred on transfer of the asset; and
In case of a long-term capital asset, the costs are increased as per a
Cost inflation index for the year.
Exemptions from Capital Gains
In case of Individuals and HUF, long-term capital gains are exempt if
the sale proceeds are reinvested in certain assets.
Some examples:
* Profits on sale of residential house is reinvested in a new
residential house.
* Long term capital gains are invested in notified bonds
These exemptions are subject to certain conditions and the
reinvestment has to be made within the prescribed time.
Other Sources Income
Any income other than (a) salary, (b) house property income (c) Income
from business or profession, or (d) Capital Gains income, will be
taxed as Income from Other Sources. Examples are interest from
deposits, winnings from lotteries, races, income from the hiring out
of machinery, or machinery compositely with building, royalty,
copyright fees, family pension, dividends other than from domestic
companies and mutual funds etc.
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