Income From House Property

Introduction

In this article I will be writing about the income from house property. If you have a individual house or appartment which you gave for the monthly renatal, the income arise from such property is considered as the other income and will be shown in the income tax returns. But, there is deductions and calculations to derive the final amount. This article explains that in detail. Please post your doubts in the comments section. If you like the article please subscribe to our future articles here.

Kind of Property

The building can be house, office building, godowns, etc. The kind of building is immaterials to the income tax. If the godowns let out for the purpose of storing the goods, the income is considered as the income from house property. It does not make any difference at all if the property is owned by a limited company or  a firm.  However, if the building or part thereof is used by the owner himself for the purpose of his own business  then there will be no income from such portion of the house property.

Ownership of the Property

The person who is owner of the property is liable to pay the tax. If the person who is receiving the rental income is not the owner (he may be sub-letting the house and get the income) then the income is not considered as the income from house property. It will be added to the income from other sources. As per Sec.27 of the Income tax Act, the following persons are to be treated as deemed owner of house property for the purpose of charging to tax income from house property:

• An individual who has transferred his house property to his spouse (otherwise than in connection with an agreement to live apart) or to a minor child (not being a married daughter);
• The holder of an impartible estate is deemed to be the individual owner of the properties of the estate;
• A member of a Co-operative Society, Company etc., to whom a building or part thereof has been allotted or leased under a house building scheme;
• A person who is allowed to take or retain possession of a property in part performance of a contract as defined in Section 53A of the Transfer of Property Act; and
• A person having long-term lease rights in a property under a lease agreement extending to 12 years or more in the aggregate including the term for which the lease may be extended.

Annual Value of Property

Concept of Annual Value:

It is important to undertand the concept of annual value used for calculating the rental income. If you let out property, then there is always annual value for the property whether it can be highr or lower then the actual rent received. For example if the annual value of such property is Rs.50000, in cae you let of that property is for Rs.75000, then it’s annual value will be taken to the actual rent received Rs.75000. But, if you rented out for Rs.35000, then the resonable value of Rs.50000 will be considered for the income tax purpose.

Incase of Self-Occupied:

If the property is self occupied, then maximum of one property annual value will be taken as nill. In this case, if one person has more than one property is self occupied, then he has to show the notional rent income except the one self occupied property.

If the property not self occupised because of work location:

A person owns a house in Bangalore and uses it for his resindential purpose. He transferred to Chennai and he stays in the rental house where he don’t have any own property. In that case cannot use the Bangalore house for self-occupation or the notional income. In that case the annual value of that property will be calculated as nill with the following conditions:

1. The assessee must be the owner of only one house property.
2. He is not able to occupy the house property because of his employment, business etc., away from the place where the property is situated.
3. The property should not have been actually let or any benefit is derived therefrom.
4. He has to reside at the place of employment in a building not belonging to him.

Deductions on Annual Value of House Property

1. The following will be deducted from the annual value of the propertry before coming to the final income:
2. Municipal Taxes if the following conditions met
   • The property is let out during the whole or any part of the previous year(There is no such deduction in respect of one self-occupied house property for which ‘nil’ annual value is adopted).
   • The Municipal taxes must be borne by the landlord(If the Municipal taxes or any part thereof are borne by the tenant, it will not be allowed).
   • The Municipal taxes must be paid during the year
3. Repairs & Collection Charges of  30% of the Annual Value.  It is fixed expenses that can be decuted from the annual value.
4. Interest loans paid for the construction or any other improvements made in tha house. It need not be in the same year.

Summary

I hope this will be more useful for calculating the income from house property. Please post your feedback on the comments section. I would like to answer your questions. If you like the article please subscribe to our future articles here.

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4. What is LAP?
5. Income Tax for Agricultural Income