What kind of income is taxed under the head "Income from House Property"?
Rent and other income from any flat, building or land appurtenant thereto is taxed under head "Income from House Property".
Is vacant land chargeable under the head "Income from House Property"?
House property does not include vacant land. Income derived from a vacant land is charged either under head “Business or profession” or under the head “Income from other sources”
Is property occupied for business or profession also chargeable under the head "Income from House Property"?
No, property occupied for business or profession is not chargeable under the head "Income from House Property". It is chargeable under the head “Income from Business or profession”.
What happens in case a person owns more than one residential house property?
If a person happens to be the owner of more than one house property for their own residential purposes then only one house (as per your choice and it is also not necessary that you are residing in that house) can be treated as self occupied and the Annual Value of such property be taken as nil, all other houses shall be deemed to be let out and Annual Value shall be computed accordingly.
Further more, in a case where the house property cannot actually be occupied by the owner due to his employment, business or profession carried on at other place and he resides at that other place in a building not belonging to him, the annual value of such house shall be taken to be nil subject to the following conditions:
- That the property must not have been let out to others, and
- No benefits have been derived by the owner
What are the tax benefits for a self occupied property?
Interest on borrowed capital for purchase of residential house property upto a limit of 1,50,000/- p.a. can be set off against income from any other source viz. salary, business or profession, income from any other source. This benefit is available even with respect to a single house property which is self occupied by the owner. Further repayment of loan upto a limit of Rs. 1,00,000/- p.a qualifies for deduction under section 80C of the income tax act.
Is there any tax benefit available for investment in a new residential house property?
There are tax exemption benefits with respect to capital gain, arising from the transfer of residential house property or capital gains arising on transfer of a long term capital asset other than a house property, if the capital gain or consideration is reinvested in purchase of a new residential house property.
Benefit of Capital Gain arising from the transfer of residential house property (Sec 54):
Capital gain arising from the transfer of a house property is exempt from tax provided the following conditions are satisfied:
"The house property is a residential house whose income is taxable under the head "Income from house property" and the transferred by an individual or a Hindu Undivided Family.
"The house property (may be self occupied or let out is a long term capital asset (i.e it must be held for a period of more than 36 months before sale or transfer)
"The assessee has purchased a residential house within a period of one year before the transfer (or within 2 years after the date of transfer) or has constructed a residential house property within a period of three years after the date of transfer.
"The house property so purchased or constructed has not been transferred within a period of three years from the date of purchase or construction.
Amount of Deduction
If the above conditions are satisfied the capital gain will be treated in a concessional manner as under : If the cost of the new house is not less than the net consideration in respect of the capital asset transferred the entire capital gain arising from the transfer will be exempt from tax. If the cost of the new house is less than the net consideration in respect of the asset transferred the exemption form long-term capital gain will be granted proportionately on the basis of investment of net consideration either for purchase or construction of the residential house.
What are the provisions of Wealth Tax Act and Gift Tax Act applicable to house property?
One house or a part of the house belonging to an individual or a Hindu Undivided Family is not chargeable to Wealth Tax. Gift made after 1.10.98 do not attract levy of gift tax either in the hands of donor or donee.
Do I have to pay any tax on "Income from House Property"?
Income from house property is taxable just as any other income like salaries, profits & gains of business and profession etc. and added to total income.
How do I compute my Income from House Property?
Income from House Property is computed on the basis of Annual Value of the property. Annual Value as distinguished from rental value is calculated based on inherent capacity of the house property to earn income. "Inherent Capacity" denotes the amount for much the property might be reasonably let out. This could be actual rent paid by the tenant or annual ratable value fixed by municipality, or the rent of similar property in the locality etc.
Do I have to pay Income Tax on Annual Value of the house occupied by me?
No, when a house property is self occupied the Annual Value of such property is taken as "nil" and as such no income tax is payable. In fact you shall be eligible for deductions such as interest etc. from your total income.
However, if you happen to be owner of more than one house property for own residential purposes then only one house (as per your choice it is also not necessary that you are residing in that house) can be treated as self occupied and the Annual Value of such property be taken as nil, all other houses shall be deemed to be let out and Annual Value shall be computed accordingly.
What are the deductions available to me in case of self occupied property?
Interest payable (whether paid or not) on loan for purchase, repairs, renewals, construction or reconstruction of house property is allowed as a deduction (from total income) up to Rs.30000/-
The Finance Act,2000 has given a huge incentive to the housing sector in respect of purchase of new housing stock. It provides that where a house property is acquired or constructed after 1st April 1999 and such acquisition or construction is completed before 1st April 2003, then the deduction allowable on interest payable shall be up to Rs.1,50,000/- p.a.
It may be pertinent to note that interest attributable to period prior to acquisition / construction is also allowable as deduction. For the purpose of such deduction the interest paid/payable before the final completion of construction or acquisition of the property will be aggregated and allowed in equal installments over five successive financial years starting from the year in which the acquisition or construction is completed. However, this benefit is not allowed for any repairs, renewals or reconstruction work.
What are the deductions available to me in case of a property given on rent or which is deemed to be let out?
The following deductions are permissible:
50% of Annual Value towards repairs and collection charges ( allowed in notional basis irrespective of the amount incurred).
Insurance premium paid for the property.
Municipal tax paid.
Annual charge on the property this is a charge not voluntarily created by the assessee ( for e.g. if a person gets a property from his father in terms of a will and one of the terms of terms of the will is that a certain monthly allowance shall be paid by the son to his mother then such charge will be allowed).
Ground Rent payable on land taken or lease.
Interest on money borrowed for the purpose of construction or acquisition of a house property.
What is the position if there is a loss under the head Income from House Property?
In case of self occupied property, as the Annual Value is taken as Nil deduction allowed on interest on borrowed capital up to maximum of Rs.100000/- will be the loss effective financial year 2000-2001.
In case of a let out property there are no restrictions on deducting the full interest payable on loans and so there can be loss under this head also.
Loss from house property can be set off against income from another house property and also from any other head of income such as Salaries, Profit and gains of business or profession etc. during the same financial year.
In case where the loss cannot be set off against any other heads of income within the same year then the balance loss can be carried forward and set off in subsequent years subject to a limit of 8 years but only against income from house property.
What is the benefit of Capital Gain in case of a house property?
Benefit on Sale of any capital assets (Section 54F)
The Income Tax Act, 1961 gives a person who does not own a residential house a concession to purchase a residential house as and when they sell s capital asset (for e.g. shares, bonds, debentures, moor car etc.). When you sell a capital asset normally you are required to pay tax on the gain in the value of asset after the benefit of indexation. If however you do not own a residential house you can reinvest the net consideration you received from the sale of capital assets in a house property and if the amount invested is equal to or more than the net consideration no income tax is payable in such capital gain. However, the following needs to be noted for claiming such benefit.
You should purchase the residential house within a period of one year before or two years after the date on which the transfer took place or construct a residential house within 3 years of such transfer.
You should not be an owner of more than one house property other than the new asset on the date of transfer of the original asset.
You should not purchase a residential house other than the new asset within a period of one year of construct any residential house other than the new house within a period of three year after the date of transfer of the original asset.
Benefits on re-investment in house property (section 54)
Apart from this if a person reinvests in a house property i.e. invests the sale proceed of a house property in purchase of new house such reinvestment is exempt from Capital Gains u/s 54 provided the new house is purchased one year before or two years after the transaction .
What are the other deductions available to me?
The following payments are eligible for rebate from tax to the extent of 20% of a maximum of Rs. 20,000 (i.e. maximum rebate is up to Rs.4000p.a.)
any installment or part payment of the amount due under any self financing scheme of any development authority, housing board etc. engaged in construction and sale of house property.
any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him ;or
Repayment of the amount borrowed by the assessee form
The Central or State Government
any bank (including co-operative bank.)
The Life Insurance Corporation of India
The National Housing Bank
Any Housing Finance Company approved by National Housing Bank for the purpose of refinance.
Any company or co-operative society that is engaged in business of financing construction of houses.
The assessee's employer where such employer is a public company as a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.
Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessed.
What are the provisions of Wealth Tax Act and Gift Tax Act applicable to house property?
One house or a part of the house belonging to our individual or a Hindu Undivided Family is not changeable to Wealth Tax.
Gift made after 1.10.98 do not attract levy of gift tax either in the kinds of donor or done
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