FAQ Tax Matters / Income from House Property?

What do I state under the head- Income from salary?
Your office accounts department will in due course give you a document
called Form 16. It is basically a summary of your income from all
sources including salaries and the deductions that you are eligible
for. The gross amount of salary inclusive of taxable value of the
perks is to be taken directly from Form 16. Take care to attach form
no.16. Without it the return would be considered irregular.

Just remember to include the deductions allowed. There is the ad hoc
deduction allowed called Standard deduction. The Professional tax that
you pay is also deductible.

How do I deal with Income from House Property?
Now this gets slightly complicated. What you are doing with your
property will determine the tax treatment. If you are living in your
own home, the tax treatment will be different from when you are using
it for business or a profession.

The owner, or the deemed owner of a house property, inclusive of the
appurtenant land, is taxed on the �annual value� of the property under
the head �income from house property�. Where the house property is
used for carrying on any business or profession, the income is not
treated as income from the house property, but as business income.

The annual value of a self-occupied property is taken as �nil�. Where
there are more than one such self-occupied properties, only one
property, as per the choice of the assessee can be taken at nil value.
All others will be treated as let out.

Where the annual value is taken as nil, all the deductions allowed on
let-out property other than the interest on borrowed capital, are not
allowed.

Where there is more than one house or in the case of let-out property,
the �gross annual value� is the maximum of (i) municipal ratable value
(ii) actual rent if the property is let out and (iii) fair rent. The
�net annual value�(NAV) is arrived at by deducting municipal taxes
actually paid during the year.

From this NAV, the following deductions are permitted :

a) One-Fourth of NAV is deductible, for repairs and rent collection
charges irrespective of the actual expenses incurred.

b)Expenses on (i) Insurance premium (ii) ground rent (iii) annual
charge, not being a capital charge and not being a voluntarily created
one (iv) land revenue (v) irrecoverable rent and (vi) State tax.

c)In the case of a let out property, vacancy allowance is deductible
if it remains vacant during a part of the year. The amount deductible
is that part of the NAV (not annual rent) on a pro-rata basis. This
deduction is however not admissible if the property remains vacant
throughout the fiscal year. It has to be let out for some part of the
year, even for one day.

What about deductibility of interest on housing loans?
If the property has been acquired, constructed, repaired, renewed or
reconstructed with borrowed capital, the interest payable is
deductible. In the case of let out properties, the entire interest
payable can be set off. In the case of self-occupied property interest
is deductible up to Rs. 75,000 but only on capital borrowed after
1.4.99 and if the acquisition or construction of the property is
completed before 1.4.2001. This terminal date has been raised to
1.4.2003 and the amount of interest deductible to Rs. 1,00,000 by the
last Finance Act. The 2001-02 budget raises this deduction further to
Rs. 1,50,000.

Then again, this relief is allowed only when the income from house
property becomes chargeable to tax. In other words, the construction
should be complete, the flat should be ready for occupation and the
municipal annual value is known.

Take care to disclose the address of the property, its nature -
whether let out or self occupied, and the computation of net income by
way of a separate annexure.

I have a side business. How do I deal with this ?
This is fairly straight forward. Remember to attach annexures stating
the computation of income from the business or profession, the profit
and loss account, balance sheet with the relevant enclosures,
including auditor's certificate along with the return. Take care to
suitably modify and adjust any disallowable expenses, claims, brought
forward losses,depreciation etc., if any, to arrive at the accurate
taxable profit or deductible loss if any.

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