Taxation assignment-2

Submitted to:Shaik jakir hussain,Associate professor,

Taxation,Klubs.

Submitted by :(Group–7)

Sonu Bhandari (14051011) G.Harika (14051051) Siddarth (14051028) Pooja Dhoot (14051032) Krishna (14051027) Srikar (14051055)

1.Explain any ten allowances that are fully taxable.

Taxable Allowances:

1. Dearness Allowance: Dearness Allowance (DA) is an allowance paid to employees as a cost of living adjustment allowance paid to the employees to cope with inflation. DA paid to employees is fully taxable with salary. The IT Act mandates that tax liability for DA along with salary must be declared in the filed return.

2. Entertainment Allowance: Employees are allowed the lowest of the declared amount --one-fifth of basic salary, actual amount received as allowance or Rs. 5,000. This is an allowance provided to employees to reimburse the expenses incurred on the hospitality of customers. However, Government employees can claim exemption in the manner provided in section 16 (ii). All other employees have to pay tax on it.

3. Overtime Allowance: Employers may provide an overtime allowance to employees working over and above the regular work hours. This is called overtime and any allowance received for this is fully taxable.

4. City Compensatory Allowance: City Compensatory Allowance is paid to employees in an urban centre which may be highly expensive and to cope with the inflated living costs in the cities. This allowance is fully taxable.

5. Interim Allowance: When an employer gives any Interim Allowance in lieu of final allowance, this becomes fully taxable.

6. Project Allowance: When an employer provides an allowance to employees to meet project expenses, this is also fully taxable.

7. Tiffin/Meals Allowance: Sometimes employers may provide Tiffin/Meals Allowance to the employees. This is fully taxable.

8. Cash Allowance: When the employer provides a cash allowance like marriage allowance, bereavement allowance or holiday allowance, it becomes fully taxable.

9. Non-Practicing Allowance: When physicians are attached to Clinical Centers of the various Laboratories/Institutes, any non-practicing allowance paid to them become fully taxable.

10. Warden Allowance: When an employer pays an allowance to an employee working as a Warden i.e. Keeper in an educational Institute, the allowance received is fully taxable.

2.Explain any ten allowances that are partly taxable.

Partly Taxable:

1. House Rent Allowance (HRA): When an employer pays an allowance for the employee’s accommodation it is called House Rent Allowance. Tax exemption under section 10 (13A) can be claimed on whichever amount is lower of the three:

1. HRA as per actuals received by the employee

2. Rent paid as per actuals less 10% of Basic Salary

3. In Metros i.e Delhi, Mumbai, Chennai or Kolkata, as much as 50% of basic salary or else 40% of it if the accommodation is in a non-metro.

Any amount of House Rent Allowance received after claiming such deduction is taxable.

2. Fixed Medical Allowance: This is an allowance paid by the employer when the employee or any of his family members fall sick for the cost incurred on their treatment. If any such reimbursement exceeds Rs.15,000 per year; the same is taxable.

3. Hill Area Allowance: This allowance is given to employees who are working on hills and mountains . Out of this allowance deduction is allowed at 300 to 7000 per month depending on the height of the hill.

4. Tribal Area Allowance: This allowance is given to employees working in the tribal areas , out of this allowance deduction is allowed at 200 per month.

5. Border Area Allowance: Out of this allowance, depending up on the risk involved, deduction is allowed at Rs.200/- to 1300/- per month.

6. Island Allowance: This allowance is given to employees working in Andaman Nicobar and Lakshadweep islands. Out of this allowance deduction is allowed to the extyent of 3250/- per month.

7. Children Education Allowance: This allowance is given for meeting the cost of education of the children of the employee out of this allowance, deduction is allowed to the extent of 100/- per month for maximum of 2 children.

8. Children Hostel Allowance: This allowance is iven for meeting the hostel bill of the children of the employee. Out of this allowance, deduction is allowed to the extent of 300/- per month for maximum of 2 children.

9. Conveyance Allowance: This allowance is given for official duty. In case of this allowance the amount actually spent is exempted from tax and the amount saved is taxable.

10. Special Allowance: A special allowance paid to employees is covered under section 14(i) and does not fall within the purview of a perquisite. It is essentially for performance of a duty is partly taxable.

3.Discuss about tax perquisites.

PERQUISITES:

The non monetary facilities provided to employees, in addition to the basic salary, are called perquisites. These are broadly classified in to 3 types. They are

1. Tax free perquisites2. Perquisites taxable in all cases3. Perquisites taxable in specified cases only

4.Explain in brief the perquisites that are taxable in all cases? Perquisites Taxable in all cases:

The following perquisites are taxable in case of all types of employees.

a) Rent Free Accommodation : In every type of permanent employment , the employee is given either house rent allowance or rent free house. If the employee is provided with rent free house, to value these perquisites, the employee’s are classified in to two types. They are

1. Government employees2. Non government employees

1. Government Employees : - The employees of central, state governments andlocal authorities are treated as government employees. If rent free accommodation or house provide to them, the value of this perquisites is fixed by the government itself. In addition to rent free house, if furniture is also provided, 10% of purchase price or cost of hiring charges are taken as the value of this perquisite. Furniture means all types of, wooden works, TV, refrigerators, air cooler, air conditioner, mixer, grinder, and water motor.

2. Non Government Employees : -The employee’s who are not treated as government employees are treated as non government employees or private employees. When these employees are provided with free house, its value is determined as follows.

ParticularsWhere population exceeds 2,50,000

Where population is less than 2,50,000 but more than 10,00,000

Where population does not exceed 10,00,000

a) When the house is owned by the employer

15% of salary 10% of salary 7.5% of salary

b)When the house is hired by the employer

15% of salary or actual rent which ever is less

15% of salary or actual rent which ever is less

15% of salary or actual rent which ever is less

b) Interest free or Concessional Loan Facility: Interest free loan or loan at concessional rate of interest given by an employer to the employee (or any member of his household) is a perquisite chargeable to tax in the hands of all employees on following basis:

1. Find out the 'maximum outstanding monthly balance' (i.e. the aggregate outstanding balance for each loan as on the last day of each month);

2. Find out rate of interest charged by the SBI as on the first day of relevant previous year in respect of loan for the same purpose advanced by it;

3. Calculate interest for each month of the previous year on the outstanding amount (mentioned in Step 1 at the rate of interest given in Step 2

4. From the total interest calculated for the entire previous year (step 3), deduct interest actually recovered, if any, from employee

5. The balance amount (Step 3-Step 4) is taxable value of perquisiteNothing is taxable if:

a. Loan in aggregate does not exceed Rs. 20,000; orb. Loan is provided for treatment of specified diseases (Rule 3A) like neurological diseases,

Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases). However, exemption is not applicable to so much of the loan amount as has been reimbursed to the employee under any medical insurance scheme.

c) Transfer of Movable Assets:

Taxable value of perquisitesa. Computers, Laptop and Electronics items: Actual cost of asset less depreciation at 50%

(using reducing balance method) for each completed year of usage by employer less amount recovered from the employee

b. Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance method) for each completed year of usage by employer less amount recovered from the employee

c. Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of usage by employer less amount recovered from the employee.

d) Any Gift or Voucher or Token :a. Gifts in cash or convertible into money (like gift cheque) are fully taxable

b. Gift in kind up to Rs.5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

5.Explain in brief the perquisites that are taxable in specified cases only.

Perquisites Taxable in specified cases only:A person is said to be a specified person if he satisfys any one of the following conditions

a) The person is adirector of any company (or)board of directorb)He posses atleast 20%of equity shares (or)20%of voting rights in any companyc) The annual salary of that person exceeds rs50000

Here salary means basic salary+all taxable allowance-deductions under sec 16The following perquisites are taxable in case of specified assess only

1.Motor Car:S. No. Circumstances Engine Capacity upto 1600 cc Engine Capacity

above 1600 cc

1 Where the motor car is owned or hired by the employer

(a) is used wholly and exclusively in the performance of his official duties;

Fully Exempt.

Provided that specified documents are maintained by the employer.

(b) is used exclusively for the private or personal purposes of the employee or any member of his household and the running and maintenance expenses are met or reimbursed by the employer;

Actual amount of expenditure incurred by the employer on the running and maintenance of motor car during the relevant previous year including remuneration, if any, paid by the employer to the chauffeur as increased by the amount representing normal wear and tear* of the motor car and as reduced by any amount charged from the employee for such use.

(c) is used partly in the performance of duties and partly for private or personal purposes of his own or any member of his household and -

(i) the expenses on maintenance and running are met or reimbursed by the employer;

Rs. 1,800 (plus Rs. 900, if chauffeur is also provided to run the motor car)

Rs. 2,400 (plus Rs. 900, if chauffeur is also provided to run the motor car)

(ii) the expenses on running and maintenance for private or personal use are fully met by the assessee

Rs. 600 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)

Rs. 900 (plus Rs. 900, if chauffeur is also provided to run the motor car)

2 Where the employee owns a motor car but the actual running and maintenance charges (including remuneration of the chauffeur, if any) are met or reimbursed to him by the employer

(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;

Fully Exempted

Provided that specified documents are maintained by the employer.

(ii) such reimbursement is for the use of the vehicle partly for official purposes and partly for personal or private purposes of the employee or any member of his household.

Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced Rs. 1800 (plus Rs. 900, if chauffeur is also provided by the employer to run the motor car)

Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced by Rs. 2400 (plus Rs. 900, if chauffeur is also provided to run the motor car)

3 Where the employee owns any other automotive conveyance but the actual running and maintenance charges are met or reimbursed to him by the employer

(i) such reimbursement is for the use of the vehicle wholly and exclusively for official purposes;

Fully Exempt

Provided that specified documents are maintained by the employer.

Not applicable

(ii) such reimbursement is for the use of vehicle partly for official purposes and partly for personal or private purposes of the employee.

Subject to maintaining specified documents by employer, the actual amount of expenditure incurred by the employer as reduced by the amount of Rs. 900.

* The normal wear and tear of a motor-car shall be taken at 10 per cent per annum of the actual cost of the motor-car or cars.

2. Services of a sweeper, a gardener, a watchman   or a personal attendant

Taxable value of perquisite shall be salary paid or payable by the employer for such services less any amount recovered from the employee.

3.Supply of Gas, Electric Energy or Water:

The value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption shall be determined as the sum equal to the amount paid on that account by the employer. Where such supply is made from resources owned by the employer, without purchasing them from any other outside agency, the value of perquisite would be the manufacturing cost per unit incurred by the employer. Where the employee is

paying any amount in respect of such services, the amount so paid shall be deducted from the value so arrived at.

Taxable in case of specified employees only

4. Free / Concessional Educational Facility:Facility extended to

Value of perquisite if provided in the school owned by the employer

Value of perquisite if provided in any other school

Children Cost of such education in similar school less Rs. 1,000 per month per child (irrespective of numbers of children) less amount recovered from employee

Amount incurred less amount recovered from employee (an exemption of Rs. 1,000 per month per child is allowed)

Other family member

Cost of such education in similar school less amount recovered from employee

Cost of such education incurred

Other Educational Facilities

Reimbursement of school fees of children or family member of employees - Fully Taxable

Free educational facilities/ training of employees - Fully exempt

5. ESOP/ Sweat Equity Shares:1. Fair Market value of shares or securities on the date of exercise of option by

the assessee less amount recovered from the employee in respect of such shares shall be the taxable value of perquisites.

2. Fair Market Value shall be determined as follows:3. In case of listed Shares: Average of opening and closing price as on date of

exercise of option (Subject to certain conditions and circumstances)4. In case of unlisted shares/ security other than equity shares: Value determined

by a Merchant Banker as on date of exercise of option or an earlier date, not being a date which is more than 180 days earlier than the date of exercise of the option

6. Explain the procedure to calculate the value of rent free house as a perquisite.

Accommodation :- For purpose of valuation of the perquisite of unfurnished accommodation, all employees are divided into two categories: (I) Central Govt. & State Govt, employees; and (ii) Others.

For employees of the Central and State governments the value of perquisite shall be equal to the licence fee charged for such accommodation as reduced by the rent actually paid by the employee.

For all others, i.e., those salaried taxpayers not in employment of the Central government and the State government, the valuation of perquisite in respect of accommodation would be at prescribed rates, as discussed below:

1.Where the accommodation provided to the employee is owned by the employer, the rate is 

15% of 'salary' in cities having population exceeding 25 lakh as per the 2001 census.

 The rate is 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 Census. 

For other places, the perquisite value would be 71/2% of the salary.

2.Where the accommodation so provided is taken on lease/ rent by the employer, the prescribed rate is 15% of the salary or the actual amount of lease rental payable by the employer, whichever is lower, as reduced by any amount of rent paid by the employee.For furnished accommodation, the value of perquisite as determined by the above method shall be increased by-

i) 10% of the cost of furniture, appliances and equipments, or ii) where the furniture, appliances and equipments have been taken on hire, by the

amount of actual hire charges payable.

- as reduced by any charges paid by the employee himself.

"Accommodation" includes a house, flat, farm house, hotel accommodation, motel, service apartment, guest house, a caravan, mobile home, ship etc. However, the value of any accommodation provided to an employee working at a mining site or an on-shore oil exploration site or a project execution site or a dam site or a power generation site or an off¬shore site will not be treated as a perquisite.

 However, such accommodation should either be located in a "remote area" or where it is not located in a "remote area", the accommodation should be of a temporary nature having plinth area of not more than 800 square feet and should not be located within 8 kilometers of the

local limits of any municipality or cantonment board. A project execution site for the purposes of this sub-rule means a site of project up to the stage of its commissioning. 

A "remote area" means an area located at least 40 kilometers away from a town having a population not exceeding 20,000 as per the latest published all-India census.

If an accommodation is provided by an employer in a hotel the value of the benefit in such a case shall be 24% of the annual salary or the actual charges paid or payable to such hotel, whichever is lower, for the period during which such accommodation is provided as reduced by any rent actually paid or payable by the employee. However, where in cases the employee is provided such accommodation for a period not exceeding in aggregate fifteen days on transfer from one place to another, no perquisite value for such accommodation provided in a hotel shall be charged. 

It may be clarified that while services provided as an integral part of the accommodation, need not be valued separately as perquisite, any other services over and above that for which the employer makes payment or reimburses the employee shall be valued as a perquisite as per the residual clause. In other words, composite tariff for accommodation will be valued as per these Rules and any other charges for other facilities provided by the hotel will be separately valued under the residual clause. 

Also, if on account of an employee's transfer from one place to another, the employee is provided with accommodation at the new place of posting while retaining the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value as per the table prescribed in Rule 3 of the Income Tax Rules, for a period up to 90 days. However, after that the value of perquisite shall be charged for both accommodations as prescribed.

7.Explain deductions allowed U/s 16?

Deductions U/S 16: The following are the deductions that are allowed u/s 16.

Professional Tax (or) Tax on Employment:- [sec16(3)]The state government or local authorities are empowerd to professional tax. Deduction is allowe for actual amount of professional tax paid by the employee.

Entertainment Allowance [Section 16(ii)]:

A deduction is also allowed under section 16(ii) in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary(exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. No deduction on account of entertainment allowance is available to non-government employees.

8. Explain the features of statutory provident fund

Statutory Provident Funds :Statutory provident funds are managed and administered under the Provident Funds Act, 1925. cc and Governments Departments. They are also known as Government Provident Funds.

9.Explain the features of Recognised provident fund

Recognized Provident Funds :

These funds are recognized by the Commissioner of Income-tax for purposes of the Act. They are governed by the rules contained in part A of the Fourth Schedule to the Income-tax Act, 1961. Provident Fund governed by the Provident Fund Act, 1952 is also known as a Recognized Provident Fund, Recognized Provident Fund is found in banks, insurance companies, manufacturing and trading concerns etc. operating in private sector.

As per S.2(38) of Income Tax Act, 1961, unless the context otherwise requires, the term “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952.

10.Explain the features of Public provident fund

Public Provident Fund :The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968.The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits.

FeaturesThe public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank,selected authorized private bank or post office. The account can be opened in the name of individuals including minor.

The minimum amount is Rs.500 which can be deposited. The rate of interest at present is 8.7% per annum, which is also tax-free. The entire balance can be withdrawn on maturity. Interest received is tax free. The maximum amount which can be deposited every year is Rs. 1,50,000 in an account at present. The interest earned on the PPF subscription is compounded annually. All the balance that accumulates over time is exempted from wealth tax. Moreover, it has low risk – risk attached is Government risk. PPF is available at post offices and banks.

11. Enumerate the procedure to calculate annual value of self-occupied house

Annual value of self occupief house:- When a person resides in his own house, it is called self-occupied house. It has no annual rental value and is not taxable. No deduction is allowed for municipal taxes & repairs paid by the owner. However deduction is allowed for interest paid by (or) payable on housing loan. The loan should be taken for purchase or construction or re-construction or repairs of house property from commercial banks, life insurance corporation and recognised financial corporations. The amount of interest should not exceed 200000 per annum [30000 in case of repairs].

12.Enumerate the procedure to calculate annual value of let out house ?Annual value of let out house:- When a house is let out throughout the year, in respect of a let out house property, the rent received is usually taken as the annual let table value. When, however, the rent is not indicative of the actual earning capacity of the house, the notional annual value will have to be found and adopted. The standard rent would be the Annual Value in the case of properties, subject to Rent Control Legislation. However, when the actual rent received or receivable is

higher than the notional value as calculated above, the higher figure will be taken for the purpose of Income-tax. From the annual value as determined above, municipal taxes are to be deducted if the following conditions are fulfilled:

• The property is let out during the whole or any part of the previous year (There is no such deduction in respect of a self-occupied house property).• The Municipal taxes must be borne by the landlord. (If the municipal taxes or any part thereof are borne by the tenant, the same will not be deductible).• The municipal taxes must be paid during the year. (Where the municipal taxes have become due but have not been actually paid, these will not be allowed. The municipal taxes may be claimed on payment basis i.e., only in the year they were paid even if the taxes belonged to a different year). Amount left after deduction of municipal taxes is net annual value. Annual Value of Let-Out House PropertyHouse property which is let out the Net Annual Value will be calculated as;Gross Annual Value – Municipal Taxes paid

Where

Gross Annual Value = Higher of Actual Rent Received or Expected Rent

Expected Rent = Higher of Municipal Value or Fair Rental Value but restricted to the Standard Rent

To understand more clearly:

X = Higher of (Municipal Value or Fair Rental Value)

Expected Rent = Lower of (X or Standard Rent)

Gross Annual Value = Higher of Actual Rent Received or Expected Rent

13.Explain the deductions allowed u/s 24?

Section 24 Deductions from House Property IncomeDeductions u/s 24

Serial No ParticularsAmount or Percentage Deduction

1 Standard deduction 30% of Net Annual Value

2 Property acquired/constructed after 1st April, 1999 with borrowed capital (deduction is allowed only where such acquisition or construction is

Rs. 1,50,000

completed within 3 years from the end of the financial year in which capital was borrowed)

3 In all other cases except in point 2. Rs. 30,000

4 In case of let out propertyFull deduction of interest on borrowed capital.

*Interest for the period prior to the acquisition or construction of the premises would be deductible in five equal instalments starting from the year in which property is acquired/constructed (possession). by Clear tax-Team on November 11, 2014 in Income from House PropertyIncome from House Property is possible in these cases –Rental Income on a let out propertyAnnual Value of a property which is ‘deemed’ to be let out for income tax purposes ( when you own more than one house property)Annual Value of the property which is self occupied, which is NilUnder section 24 of the Income Tax Act you are allowed to make certain deduction from the Net Annual Value of your House Property. Net Annual Value is Gross Annual Value less Municipal Taxes Paid. In case the property is let out, its rent received is your Gross Annual Value, whereas in case of a deemed to be let out property, a reasonable rent of a similar place is your Gross Annual Value. For a self occupied house property the Gross Annual Value is Nil.

There are only 2 deductions available under section 24Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower. Therefore this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc. For a self occupied house property, since the Annual Value is Nil, the standard deduction is also 0 on such a property.

Deduction of Interest on Home Loan for the property – In case you take a home loan for purchase, construction, repair, renewal or reconstruction of your house property – the interest is allowed as a deduction from the Net Annual Value. Deduction for interest on money borrowed is allowed on accrual basis (allowed even though interest may not actually have been paid), so keep claiming your interest deductions each year basis interest that is due (instead of interest that is paid). Do remember that no deduction is allowed for any brokerage or commission for arranging the loan. In case of a self occupied house property, this deduction is allowed to be claimed and therefore, you may in such a case have a loss under the head House Property. The total amount allowed towards this deduction for a self occupied house property is Rs 2,00,000 beginning assessment year 2015-16. In case of a let out or a deemed to be let out property, the entire interest is allowed as deduction under section 24. You can start claiming this interest when the construction of your property is complete.

Pre-construction interest   – is allowed when you have taken a loan for purchase or construction of a house property (not allowed in case of loan for repairs or reconstruction).

The deduction for this interest is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed. For example, if construction of your property completed in FY 2014-15, on 16th June 2014, you can claim 1/5th of interest paid uptil 31st March 2014 when you file your return for FY 2014-15.Though pre construction interest is allowed to be deducted on the basis of 1/5th each year beginning the year in which the construction is completed – the total amount that can be claimed in a year should not exceed Rs 2,00,000 in case of a self occupied house property.Conditions for claiming Interest on home loan deduction – You need to meet all the below 3 conditions to claim this deduction

Loan has been take after 1st April 1999 for purchase or construction The acquisition or construction is completed within 3 years from the end of the financial year

in which the loan was taken There is interest certificate available for the interest payable on the loan

Note that your interest deduction may be limited to Rs 30,000 if any one of these conditions is met –

Loan is borrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of house property

Loan is borrowed on or after 1st April 1999 for repairs, renovation or reconstruction of house property.

14. Explain the procedure to calculate annual rental value of a house determined if it is let out for 9 months and self-occupied for 3 months?

When the house property is let out for 9 months and self occupied for 3 months: - In this case its value is determined in 3 stages 1st stage: - (a) Municipal value for entire year whichever is higher

(b)Fair rental value

2nd stage: - (a) standard rent for entire year (b) The value which is fixed in first stageNote: - The value fixed in first stage should not exceed standard rent.

3rd stage: - (a) value fixed in second stage whichever is higher (b) actual rent received for 9 months

15.Explain the procedure to calculate annual rental value when the assessee owns more than one house and all are self-occupied?

When an assesse owns more than one house and are self occupied: -

When a person owns more than one house and all are self occupied, only one house with higher annual rental value is treated as self occupied and other houses are deemed to be let out. Moreover it makes no difference between actually let out house and deemed to be let out house for the purpose of income tax. When the house has no stairs or no. of portions and all are self occupied, the entire house is taken as a single unit and is treated as self occupied.

16.Show the treatment of income from house property in case of co-ownership and dispute about ownership?

Co- ownership: - In case of undivided house properties, there may be no. of owners who are called co- owners. If they reside in their respective portions, they are treated as self occupied and when they let out their respective portions, they are treated s let out house.

17.Explain in detail about municipal taxes in case of house property?Income from house property : deduction for payment of municipal taxes

The municipal taxes etc levied by the local authority are to be deducted from the gross annual value to arrive at the net annual value. However, thid deduction is allowed only if the both following condition are satisfied:-

1. the municipal taxes have been borne by the owner2. these have actually been pain during the financial year

therefore deduction for municipal taxes etc levied by any local authority is allowed if they are borne and actually paid by the owner. It must be noted that the taxes are allowed as a deduction only in the financial year in which they are paid.Municipal taxes which are due have not been paid are not allowed as a deduction. Municipal taxes etc due but not paid shall not be allowed as adeduction. However , municipal taxes etc paid during a fincial year are allowed eveb if thet relate to past ayears or future years

18. Explain in detail about interest on borrowings in case of house property

Interest on borrowed capital:- Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as a deduction. The amount of interest payable yearly should be calculated separately and claimed as a deduction every year. It is immaterial whether the interest has been actually paid or not paid during the year. [Circular No. 363, dated 24.06.1983] Interest attributable to the period prior to completion of construction: It may so happen that money is borrowed earlier and acquisition or completion of construction takes place in any subsequent year.

Meanwhile interest becomes payable. In such a case interest paid/payable for the period prior to the previous year in which the property is acquired/constructed will be aggregated and allowed in five successive financial years starting from the year in which the acquisition/construction was completed. Interest will be aggregated from the date of borrowing till the end of the previous year prior to the previous year in which the house is completed and not till the date of completion of construction.

19.Examine the concept of unrealised rent with suitable exampleUnrealised Rent: - When a house is let out & rent for certain period cannot be collected, it is called unrealised rent. In this case the heighest of the following 3 items is taken as the annual rental value of that house.

1. Municipal value.2. Fair rental value.3. Actual rent received.

For tax purposes, it is possible to deduct unrealized rent from your rent received, and thereby

avoid paying tax on such unrealized income.

Example 1: You have put one of your properties on rent, and your rent received is 10,000 ₹per month or 120,000 per year. You are liable to pay tax on this income. However, let's say,₹

your tenant was going through a financial crisis and was not able to pay you rent for three

months. In such a scenario, you can deduct 30,000 ( 10,000 x 3) from the rental income, ₹ ₹and you need to pay tax only the 90,000 which you have actually received.₹

Thank you