By Accommodation Times Bureau
Meaning of House Property:- House property consists of any building or land appurtenant thereto of which the assessee is the owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the building. But such land is to be distinguished from an open plot of land, which is not charged under this head but under the head „Income from Other sources? or „Business Income?, as the case may be. Besides, „house property? includes flats, shops, office space, factory sheds, agricultural land and farm houses. Further, house property includes all type of house properties, i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc. Example:- Mr. X has one big house. It includes vast open area within its boundaries. The house has been let out at a rent of Rs. 1,00,000 p.m., out of which rent of Rs. 25,000 p.m. is attributable to the open land. In this case, entire rental income is taxable under the head house property. Essential conditions for taxing income under this head Income from house property is taxable in the hands of its legal owner in whose name the property stands. „Owner? for this purpose means a person who can exercise the rights of the owner not on behalf of the owner but in his own right. A person entitled to receive income from a property in his own right is to be treated as its owner, even if no registered document is executed in his name. The following three conditions must be satisfied before the income of the property can be taxed under the head “Income from House Property”: ? The property must consist of buildings and lands appurtenant thereto; ? The assessee must be the owner of such house property; ? The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax. Ownership includes both free-hold and lease-hold rights and also includes deemed ownership Tax Chargeability [Sec. 22] The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner shall be subject to Income-tax under the head „Income from House Property? after claiming deduction under Sec. 24, provided such property or any portion of such property is not used by the assessee for the purpose of any business or profession, carried on by him, the profits of which are chargeable to Income-tax. Deductions from income from house Property [Sec.24] Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:-
i) Standard deductions:- From the net annual value computed, the assessee shall be allowed a standard deduction of a sum equal to 30% of the net annual value.
ii) 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. ? Deductions provided under Sec.24 The deductions under Sec. 24 include standard deduction and interest on borrowed capital and no other deduction is allowed from net annual value. Any amount paid for brokerage or commission for arrangement of the loan will not be allowed as deduction. [Circular No. 28, dated 20-8-1969].
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