Thursday, June 16, 2016

income under the head house property with questions and answers

  1. Sec 22 : Annual Value of Building owned is taxable under HP (except used for Business/Profession) with example & answer
  2. Deduction u/s 24(b), example, answer and special points
  3. Tax treatment of various properties
  4. Sec 25 : Deduction of Interest payable outside India
  5. Sec 26 : House Property Owned by Co-owners
  6. Sec 27 : Deemed Owners
  7. Example and Answer: income from house property for A.Y. 2016-17


Loan Taken on 01-05-2006 of Rs. 5,00,000/- @12%p.a. Construction End on 07-09-2012.
Pre Construction/Acquisition Period = 01-05-2006 to 31-03-2012

Pre Construction/Acquisition Interest = Rs 3,55,000 ( Rs 5,00,000*71 Months*1%)

Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17
Assuming let out property or deemed to be let out = Rs 71,000 per year ( 3,55,000/5 )

Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17
Assuming self occupied property = Rs 71,000 per year ( 355000/5 ) (as the construction is completed within 5 years from the end of the financial year in which capital was borrowed)

Interest from 01-04-2012 to 31-03-2013 shall be allowed as deduction in 2012-13 as current year’s interest. Interest from 01-04-2012 to 07-09-2012 shall not be considered as Pre Acquisition/Construction Period.

Note: – If a property is partly self occupied property and partly let out then also the limit of Rs 2,00,000/30,000 shall be available for SOP portion and there is no limit of deduction for let out portion even if the construction is completed after 3 years.

Example: Mr. X commenced construction of a residential house intended exclusively for his residence, on 01.11.2014. He raised a loan from PNB of Rs.5,00,000 at 16 per cent interest for the purpose of construction on 01.11.2014. Finding that there was an over-run in the cost of construction he raised a further loan of `8,00,000 at the same rate of interest on 01.10.2015. The assessee has submitted a certificate confirming the amount of interest. What is the interest allowable under section 24, assuming that the construction was completed by 31.03.2016.

Answer :Since the house was for self-occupation only, the annual value of the property would be ‘nil’ under section 23(2).The interest allowable for the current year has to be considered with respect to both the loans. Interest on loan borrowed after 01.04.1999 is eligible for deduction subject to a maximum of Rs.2,00,000 in the case of self occupied property.

Special Points
  1. Interest on unpaid interest is not deductible.
  2. Interest on a fresh loan raised merely to repay the original loan taken for the above purpose is allowable as a deduction under this section.
  3. Brokerage or commission paid for arranging the loan is not deductible.
  4. If arrears of interest is paid during the previous year, no deduction is available in respect of arrears as it has already been claimed on due basis in earlier years.
  5. Similarly interest paid in advance is not fully deductible in one year, as deduction is on accrual basis.
  6. If interest is payable outside India then it must be paid after TDS as per the requirement of Section 25 of Income Tax Act, otherwise the deduction shall not be allowed.
  7. If interest is paid on unpaid purchase price to the seller then also deduction can be claimed u/s 24(b).

Sec 25 : Deduction of Interest payable outside India
  1. Shall be allowed only if
  2. Tax deposited on such Interest income or Deducted at
  3. source from such interest income or some person is treated
  4. as agent in India of recipient
Sec 26 : House Property Owned by Co-owners
  1. If the share of each co-owner
  2. Is definite & ascertainable
  3. Each co-owner shall be taxable for his portion in HP
  4. Otherwise HP income taxable in hands of AOP
Sec 27 : Deemed Owners
  1. Individual transfers House Property to Spouse for inadequate consideration except ,HP transferred under an agreement to live apart
  2. HP transferred to minor except minor married daughter .
  3. Holder of impartible estate.
  4. Member of Co-op society, Company to whom flat is allotted under house building scheme
  5. Person allowed to take Possession as per transaction u/s 53A of Transfer of Property Act.
  6. A person acquiring House property on lease for 12 years or more

WN : Interest on housing loan is allowable as a deduction under section 24 on accrual basis. Further, interest on fresh loan taken to repay old loan is also allowable as deduction. However, interest on unpaid interest is not allowable as deduction under section 24.

WN :
(i) It is assumed that both the units are of identical size. Therefore, the rented unit would represent 50% of total area and the self-occupied unit would represent 50% of total area.
(ii) No deduction will be allowed separately for light and water charges, insurance charges and repairs.

Example: Mr. Ramesh owns a house property which is let out. During the previous year ending 31.03.2016 he receives
(i) Arrears of rent of Rs.10,000 and
(ii) Unrealised rent of Rs.30,000.

You are requested to
(a) state, how they should be dealt with as per the provisions of the Act, and
(b) compute the income chargeable under the head “Income from house property”.

(a) As per provisions of section 25B, arrears of rent will be charged to tax as income from house property in the previous year in which such rent is received, after deducting a sum equal to 30% of such amount. The taxability shall be there whether Mr. Ramesh remains as the owner of the property in the concerned year or not. In this case, it shall be taxed as income from house property in the year of receipt of such arrear rent.

(b) As per the provisions of section 25AA, the unrealised rent when received, it shall be deemed to be the income chargeable under the head “Income from house property” and shall be charged to tax in the year of receipt. In this case also, the taxability shall be there, irrespective of the fact whether Mr. Ramesh is the owner of property or not in the year of receipt. The section does not provide for any deduction. 

Credit goes to
Durgesh Vashisth


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