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A roof over your head. It’s a symbol of financial security, the dream that motivates
many of us–and is, perhaps, the biggest spending decision in the lives of many. It
also has tax angles that you perhaps didn’t know about. Read on and find out more...
What is income from house property?
The annual value of any property you own is taxable under
the head ‘income from house property’. While there are a few deductions
available from this income, income from a property is not taxable under the head
‘income from house property’ when...
a. The property is used for one’s own business or
profession.
b. The property is self-occupied.
c. It is income from a farmhouse.
d. It is the property income of a local authority.
e. It is the property income of a university or an
educational institution.
f. It is the property income of a trade union.
g. It is property held for charitable or religious
purposes.
h. It is the property income of a political party.
i. It is the property income of an approved scientific
research association.
Annual value of the house property
The annual value of house property has been defined as
‘the amount for which the property may reasonably be expected to be let out for a
year’.
However, if your property is let out for the whole or a
part of the financial year, the gross annual value will be the amount received during the
year as a result of the letting out of the house property. This shall also exclude the
rent that the taxpayer is unable to realise in the financial year.
The following four factors have to be taken into
consideration while determining the annual property:
a. Rent payable by the tenant.
b. Municipal valuation of the property.
c. Fair rental value (market value of a similar property in
the same area) of the property.
d. Standard rent payable under the Rent Control Act.
What is gross annual value?
In the case of self-occupied property, the annual value is
taken to be ‘nil’.
In the case of property that is rented out, the gross
annual value is the municipal value, the de facto rent (whether received or receivable) or
the fair rental value, whichever is highest. If, however, the Rent Control Act applies to
the property, the gross value cannot exceed the de facto rent or the standard rent under
the Rent Control Act, whichever is higher.
Deductions from the annual value
No deduction is available from the net annual value of a
self-occupied house property, since the net annual value of a self-occupied house property
works out to be ‘nil’. The only exception is in the case of interest payments on
borrowed capital.
Finance Bill 2001 seeks to replace section 24 (which deals
with deductions from the net annual value of a house property) with a new section.
Accordingly, only the following two deductions will be allowed from the net annual value
(which is gross annual value less municipal taxes ‘paid’ and not
‘accrued’) to arrive at your taxable income under the head ‘income from
house property’:
Repairs and collection charges:
30 per cent (instead of the earlier 25 per cent) of the net
annual value will be allowed as a deduction towards repairs and collection of rent for the
property, irrespective of the actual expenditure incurred.
Interest on borrowed capital:
The interest on borrowed capital will be allowable as a
deduction on an accrual basis if the money has been borrowed to buy or construct the
house. However, the money paid as brokerage or commission to get the loan is not allowable
as a deduction.
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