For For GONSALO GARCIA GONSALO GARCIA

TY B.COM STUDENTS TY B.COM STUDENTS

2011-12 BATCH2011-12 BATCH

FromFrom Jose George Jose George

HEADS OF INCOME HEADS OF INCOME

INCOME FROM HOUSE INCOME FROM HOUSE PROPERTYPROPERTY

INCOME FROM HOUSE INCOME FROM HOUSE PROPERTYPROPERTY

Charging Section S. 22Charging Section S. 22 , Annual Value , Annual Value of any property consisting of any building or land of any property consisting of any building or land appurtenant thereto of which, the assessee is the appurtenant thereto of which, the assessee is the owner is chargeable to tax under the head “Income owner is chargeable to tax under the head “Income from House Property”from House Property”

INCOME FROM HOUSE INCOME FROM HOUSE PROPERTYPROPERTY

fol lowing three condit ions:fol lowing three condit ions: property consists of buildings or lands appurtenant property consists of buildings or lands appurtenant

theretothereto the assessee should be the owner of the propertythe assessee should be the owner of the property the property should not be used by th owner for his own the property should not be used by th owner for his own

businessbusiness

INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY

Owner includes legal as well as Owner includes legal as well as deemed ownerdeemed owner Deemed owner as per section 27 includes:Deemed owner as per section 27 includes:

Transfer to spouse without an agreement to live apart or to a Transfer to spouse without an agreement to live apart or to a minor, not a married daughterminor, not a married daughter

Holder of an impartible estateHolder of an impartible estate Property held by a member of a co-operative society / company Property held by a member of a co-operative society / company

/ AOP/ AOP A person who has acquired a property under power of A person who has acquired a property under power of

attorney attorney Person acquired a right on a property under lease Person acquired a right on a property under lease

INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY

Owner includes legal as well as Owner includes legal as well as deemed ownerdeemed owner Deemed owner as per section 27 includes:Deemed owner as per section 27 includes:

Transfer to spouse without an agreement to live apart or to a Transfer to spouse without an agreement to live apart or to a minor, not a married daughterminor, not a married daughter

Holder of an impartible estateHolder of an impartible estate Property held by a member of a co-operative society / company Property held by a member of a co-operative society / company

/ AOP/ AOP A person who has acquired a property under power of A person who has acquired a property under power of

attorney attorney Person acquired a right on a property under lease Person acquired a right on a property under lease

INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY Exempted propertyExempted property

income from farm house (u/s 2(1A) (10(1))income from farm house (u/s 2(1A) (10(1)) annual value of any one palace of an ex-ruler Se. annual value of any one palace of an ex-ruler Se.

10(19A)10(19A) property income of a local authority (10( 20)property income of a local authority (10( 20) property income of an approved scientific research property income of an approved scientific research

association (10(21)association (10(21) property income of an educational institution (10(20C)property income of an educational institution (10(20C)

INCOME FROM HOUSE PROPERTYINCOME FROM HOUSE PROPERTY

Exempted propertyExempted propertyproperty income of a trade union (10(24)property income of a trade union (10(24) house property held for charitable purpose (11) house property held for charitable purpose (11) property income of a political party (13A)property income of a political party (13A)property used for own business or profession (22)property used for own business or profession (22) one self-occupied property Sec 23(2)one self-occupied property Sec 23(2)

computation of income from house property computation of income from house property depends on the type of propertydepends on the type of property

let out House propertylet out House property

se lf -occupied propertyself -occupied property let out property remain vacantlet out property remain vacant partly let out and part ly se lf occupied partly let out and part ly se lf occupied deemed to be let outdeemed to be let out property owned by co-ownersproperty owned by co-owners

Computation of Annual ValueComputation of Annual Value

let out House propertylet out House property

Annual ValueAnnual Value XXXXXX Less Muncipal TaxLess Muncipal Tax XXXXXX Adj. Annual ValueAdj. Annual Value xxxxxx less Deduction u/s 24less Deduction u/s 24 XXXXXX

Income from House PropertyIncome from House Property XXXXXX Tax under the head income from House property is not a tax upon rent Tax under the head income from House property is not a tax upon rent

of a property. It is tax on the capacity of a building to yield income. The of a property. It is tax on the capacity of a building to yield income. The measure of such income is called Annual Valuemeasure of such income is called Annual Value

Computation of Income from House Computation of Income from House propertyproperty

Annual value is the estimated value of Annual value is the estimated value of Income expected if the property is rented.Income expected if the property is rented.

Annual value is the Annual value is the reasonable letting Value or reasonable letting Value or Actual Rent of the property which ever is higher.Actual Rent of the property which ever is higher.

Reasonable letting value is the Municipal value or Fair rent Reasonable letting value is the Municipal value or Fair rent which ever is higher restricted to Standard rent a per Rent which ever is higher restricted to Standard rent a per Rent Control ActControl Act

Computation of Annual Value of Let –out Computation of Annual Value of Let –out

reasonable lett ing value is :reasonable lett ing value is : Municipal value orMunicipal value or Fair rent Fair rent Which ever greater restr icted to Standard Which ever greater restr icted to Standard

rentrent

Municipal Valuation is the ratable value fixed by the Municipal Valuation is the ratable value fixed by the municipality for charging municipal tax . municipality for charging municipal tax .

Fair rent is the rent fetched by a similar accommodation in Fair rent is the rent fetched by a similar accommodation in the same or similar localitythe same or similar locality

Standard rent is the maximum rent which a person can legally Standard rent is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. recover from his tenant under the Rent Control Act.

Computation of Annual Value of Let –outComputation of Annual Value of Let –out

COMPUTATION OF ACTUAL RENTCOMPUTATION OF ACTUAL RENT

ACTUAL RENT ACTUAL RENT Actual rent is applicable only to let out houses. Actual rent is applicable only to let out houses.

Actual rent is rent received or receivable. Actual rent Actual rent is rent received or receivable. Actual rent is the rent of the previous year for which the property is the rent of the previous year for which the property was available for letting out. The unrealised rent, if it was available for letting out. The unrealised rent, if it fulfills the conditions, is allowed to deduct from fulfills the conditions, is allowed to deduct from actual rent receivableactual rent receivable

Actual Rent = Actual rent received or receivable – Actual Rent = Actual rent received or receivable – allowable unrealised rentallowable unrealised rent

Loss due to vacancyLoss due to vacancy

If the let out property remain vacant for a If the let out property remain vacant for a period, the loss due to vacancy is allowed to be period, the loss due to vacancy is allowed to be deducted from the highest value, arrived after deducted from the highest value, arrived after comparing reasonable letting value with comparing reasonable letting value with Annual Rent. The balance after the deduction Annual Rent. The balance after the deduction of loss due to vacancy , if any, is the Annual of loss due to vacancy , if any, is the Annual ValueValue

Find out the annual ValueFind out the annual ValueH1 H2 H3 H4 H5

Municipal Value 105 105 105 105 105

Fair rent 107 107 107 107 107

Standard rent NA 88 88 135 135

Actual Rent 103 112 86 114 97

Unrealised rent (condition fulfills)

1 2 1 2 1

Period of the previous year (in months)

12 12 12 12 12

Period for which property remain vacant

Nil Nil Nil Nil Nil

AnswerAnswerReasonable letting valueReasonable letting value 107107

(fair rent -107, MV- 105 St Rent nil)(fair rent -107, MV- 105 St Rent nil)Actual Rent (103-1)Actual Rent (103-1) 102102

AR -103; allowable unrealised rent 1 AR -103; allowable unrealised rent 1

The Highest RLV or ARThe Highest RLV or AR 107107

Less loss due to vacancyLess loss due to vacancy NilNil

Annual ValueAnnual Value 107107

AnswerAnswerReasonable letting valueReasonable letting value 8888

(fair rent -107, MV- 105 St Rent 88)(fair rent -107, MV- 105 St Rent 88)Actual Rent (112-2)Actual Rent (112-2) 110110

AR -112; allowable unrealised rent 2 AR -112; allowable unrealised rent 2

The Highest RLV or ARThe Highest RLV or AR 110 110

Less loss due to vacancyLess loss due to vacancy Nil Nil

Annual ValueAnnual Value 110110

AnswerAnswerReasonable letting valueReasonable letting value 8888

(fair rent -107, MV- 105 St Rent 88)(fair rent -107, MV- 105 St Rent 88)Actual Rent (86-1)Actual Rent (86-1) 8585

AR -86; allowable unrealised rent 1 AR -86; allowable unrealised rent 1

The Highest RLV or ARThe Highest RLV or AR 8888

Less loss due to vacancyLess loss due to vacancy NilNil

Annual ValueAnnual Value 8888

AnswerAnswerReasonable letting valueReasonable letting value 107 107

(fair rent -107, MV- 105, St Rent 135)(fair rent -107, MV- 105, St Rent 135)Actual Rent (97-1)Actual Rent (97-1) 96 96

AR -97; allowable unrealised rent 1 AR -97; allowable unrealised rent 1

The Highest RLV or ARThe Highest RLV or AR 107 107

Less loss due to vacancyLess loss due to vacancy NilNil

Annual ValueAnnual Value 107 107

QuestionQuestionX owns a house property (municipal Valuation . X owns a house property (municipal Valuation .

1,45,000, fair rent1,36,000 standard rent Rs. 1,45,000, fair rent1,36,000 standard rent Rs. 1,24,000 it is let out throughout the previous 1,24,000 it is let out throughout the previous year(rent being 8000 per month upto November year(rent being 8000 per month upto November 15, 2010 and Rs. 14000 per month thereafter) X 15, 2010 and Rs. 14000 per month thereafter) X transfer the property to Y on Jan 31 2011, transfer the property to Y on Jan 31 2011, Find out the annual Value of the property in Find out the annual Value of the property in the hands of Mr. X for the assessment year the hands of Mr. X for the assessment year 2011 - 12 2011 - 12

AnswerAnswerReasonable letting valueReasonable letting value 1,03,3331,03,333

(fair rent -1,36,000/12X10=113,333, MV- (fair rent -1,36,000/12X10=113,333, MV- 145000/12X 10=120,833, St Rent 145000/12X 10=120,833, St Rent 124000/12X10=1,03,333)124000/12X10=1,03,333)

Actual Rent (8,000X7 Actual Rent (8,000X7 1/21/2 +14000X2 +14000X2 1/21/2))95000 95000

The Highest RLV or ARThe Highest RLV or AR 1,03,3331,03,333

Less loss due to vacancyLess loss due to vacancy NilNil

Annual ValueAnnual Value 1,03,3331,03,333

Loss due to vacancyLoss due to vacancy

If the Annual Rent is less than the If the Annual Rent is less than the Reasonable letting Value only because Reasonable letting Value only because of the loss due to vacancy , then the of the loss due to vacancy , then the Annual Rent is to be taken as Annual Annual Rent is to be taken as Annual ValueValue

Loss due to vacancyLoss due to vacancy

Fair Rent Rs. 24000, Municipal Fair Rent Rs. 24000, Municipal Valuation Rs 28000, Actual Rent Rs. Valuation Rs 28000, Actual Rent Rs. 36,000 (for 12 month) property remain 36,000 (for 12 month) property remain vacant for 1 month) calculate the vacant for 1 month) calculate the annual Valueannual Value

AnswerAnswerReasonable letting valueReasonable letting value 2800028000

(fair rent –25000, MV- 28000, (fair rent –25000, MV- 28000, Actual Rent Actual Rent 36000 36000

The Highest RLV or ARThe Highest RLV or AR 3600036000

Less loss due to vacancyLess loss due to vacancy 30003000

Annual ValueAnnual Value 3300033000

AnswerAnswerFair rent Rs. 26,000, Municipal Valuation Rs. Fair rent Rs. 26,000, Municipal Valuation Rs.

30000, Rent Rs. 2000 pr month, 1 month the 30000, Rent Rs. 2000 pr month, 1 month the property remain vacant and rs. 2000 unrealised property remain vacant and rs. 2000 unrealised rnt ulfils conitions.rnt ulfils conitions.

AnswerAnswerReasonable letting valueReasonable letting value 3000030000

(fair rent –26000, MV- 30000, (fair rent –26000, MV- 30000, Actual Rent (2000 X 12)Actual Rent (2000 X 12) 24000 24000Less Unrealised Less Unrealised 2000 2000

2200022000

The Highest RLV or ARThe Highest RLV or AR 3000030000

Less Less loss due to vacancy(2000X1)loss due to vacancy(2000X1) 20002000 Annual ValueAnnual Value2800028000

Deduct Municipal TaxesDeduct Municipal Taxes

From the annual Value deduct From the annual Value deduct Municipal Taxes levied by any local Municipal Taxes levied by any local authority in respect of the house authority in respect of the house property. This tax is deductible only if property. This tax is deductible only if it is actually paid by the owner and it is actually paid by the owner and only to the extent it is paid during the only to the extent it is paid during the yearyear

Deduction u/s 24Deduction u/s 24

Standard deduction Standard deduction Interest on borrowedInterest on borrowed

Deduction u/s 24Deduction u/s 24

Standard deduction Standard deduction Interest on borrowedInterest on borrowed

Standard deductionStandard deduction

No deduction can be claimed by an assessee No deduction can be claimed by an assessee other than mentioned in section 24. Standard other than mentioned in section 24. Standard deduction is allowed irrespective of expenses deduction is allowed irrespective of expenses incurred by the assesseeincurred by the assessee

30 % of the adjusted annual value30 % of the adjusted annual value is deductible irrespective of expenses incurred by is deductible irrespective of expenses incurred by the taxpayerthe taxpayer

Interest on Borrowed CapitalInterest on Borrowed Capital Interest on Borrowed capital is allowed as deduction if Interest on Borrowed capital is allowed as deduction if

capital is borrowed for the purpose of purchase, construction, capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the propertyrepair, renewal or reconstruction of the property

It is deductible on accrual basis. It can be deductible as It is deductible on accrual basis. It can be deductible as yearly, it is deductible even if it is not actually paid during yearly, it is deductible even if it is not actually paid during the previous yearthe previous year

No deduction for any brokerage or any expenses for arranging No deduction for any brokerage or any expenses for arranging

the loan is allowedthe loan is allowed interest of a fresh loan taken for the repayment of the earlier interest of a fresh loan taken for the repayment of the earlier

loan is allowed as deductionloan is allowed as deduction

Interest Payable for pre-construction Interest Payable for pre-construction periodperiod

If interest on Borrowed capital is paid prior to the If interest on Borrowed capital is paid prior to the acquisition or completion of construction, the interest paid acquisition or completion of construction, the interest paid during that period is allowed as deduction in five equal during that period is allowed as deduction in five equal installments . But if such amount is allowed as deduction installments . But if such amount is allowed as deduction under any other provision earlier the amt. so deducted is not under any other provision earlier the amt. so deducted is not allowed as deduction under this provisionallowed as deduction under this provision

QuestionQuestion Mr. Jeevan has a house in Mumbai, which he used for his Mr. Jeevan has a house in Mumbai, which he used for his

residence in the previous year 2009-10. Due to to his transfer residence in the previous year 2009-10. Due to to his transfer to Nagpur he could not occupy this house in the previous year to Nagpur he could not occupy this house in the previous year 2010-11. he stays in a rented house in Nagpur, He has let out 2010-11. he stays in a rented house in Nagpur, He has let out his mumbai house property @ Rs. 12000 per month. He spend his mumbai house property @ Rs. 12000 per month. He spend Rs. 2000 for insuring the property and 2000 for repairs. Fair Rs. 2000 for insuring the property and 2000 for repairs. Fair rent of the house property comes Rs. 13000 per month. The rent of the house property comes Rs. 13000 per month. The property remain vacant for 2 months and the unrelised which property remain vacant for 2 months and the unrelised which fulfills conditions Rs. 10000 calculate the income from HP of fulfills conditions Rs. 10000 calculate the income from HP of Mr. JEEVAN for the assessment year 2011-12 Mr. JEEVAN for the assessment year 2011-12

AnswerAnswer Let-out HouseLet-out HouseAnnual ValueAnnual Value 3000030000

(Fair rent- 13000 X 12=156000 or MV(Fair rent- 13000 X 12=156000 or MV

Nil, thus RLV =156000, Actual RentNil, thus RLV =156000, Actual Rent

Rs. 12000 X 12 =1,44000 – Unrealised rent Rs. 10, 000 Actual Rs. 12000 X 12 =1,44000 – Unrealised rent Rs. 10, 000 Actual Rent = 144000-10000=134000)Rent = 144000-10000=134000)

RLV or Actual rent which ever is higher = 156000RLV or Actual rent which ever is higher = 156000

Less Loss due to Vacancy (12000 X 2) 24000Less Loss due to Vacancy (12000 X 2) 24000

Annual ValueAnnual Value 132000 132000

AnswerAnswer Let-out HouseLet-out HouseAnnual ValueAnnual Value 132000132000Less Municipal TaxLess Municipal Tax NilNilAdjusted Annual ValueAdjusted Annual Value 132000132000Less Less deduction U/S 24deduction U/S 241. Standard deduction1. Standard deduction30% of Adjusted Annual Value30% of Adjusted Annual Value 3960039600

2.Interest on Borrowed Capital2.Interest on Borrowed Capital 2000 2000 41600 41600

Income From House Property Income From House Property 9040090400