Imp.]: Write a note on incomes chargeable to tax under the head House Property

Or Explain the meaning of the term ‘House Property’.

Answer:

Chargeability of income under the head House Property Section 22

Income from letting out of house property is chargeable to tax under the head House Property

If the income is from sale or purchase of house property, it will be taxable under the head Capital Gains, however if the sale or purchase is part of a business, income is taxable under the head Business/Profession.

Meaning of house property

The term house property shall include not only the buildings but also the lands appurtenant thereto i.e. the term house property shall include even any open land which is part and parcel of the building.

Example

Mr. Bhagawan Priyadarshi has one big house and it includes vast open area within its boundaries. The house has been let out at a rent of `1,00,000 p.m., out of which rent of `25,000 p.m. is attributable to the open land. In this case, entire rental income is taxable under the head house property.

Further, house property includes all types of house properties i.e. residential houses, shops, godowns, cinema building, workshop building, hotel buildings etc.

Income from letting out of land

If any person has let out only land, which is not essential part of any building, income is taxable under the head other sources.

Example

Mr. Saurabh has one big piece of land which is let out for arranging exhibitions or for the purpose of marriage parties etc., rent received or receivable is taxable under the head other sources.

Income from business of letting out house property

If any person is holding house property as stock-in-trade for the purpose of letting out, income shall be taxable under the head house property, even if it is his business.

Example

ABC Ltd. is holding 500 flats for the purpose of letting out, income shall be taxable under the head house property.

Income from hotel business/paying guest accommodation/warehouse

If any person has any hotel building which has been let out, income from such hotel building shall be taxable under the head house property but if he is running the hotel business or he is running the business of providing paying guest accommodation, income shall be taxable under the head Business/Profession.

Similarly, if he is engaged in the business of warehousing, income is taxable under the head Business/Profession.

Computation of Income under the head House Property

Gross Annual Value (GAV) `……….

(Fair Rent or Municipal Valuation whichever is higher but it cannot exceed standard rent and the rent so computed is called expected rent.

Expected rent shall be compared with rent received or

receivable and higher of the two shall be the gross annual value.)

Less: Taxes paid by owner to local authority `….………….

In order to compute income under the head house property, the house properties shall be divided into five categories –

• CATEGORY I

Houses which are let out throughout the year Sec 23(1)(a)/(b)

• CATEGORY II

Houses which are partly let out and partly vacant or houses lying vacant throughout the year Sec 23(1)(c) .

• CATEGORY III Self occupied house property

(a) One house, which is self occupied throughout the year or unoccupied property. Sec 23(2).

(b) More than one house which is self occupied Sec 23(4).

(c) House property in the business or profession of the assessee Sec 22

• CATEGORY IV

Houses which are partly let out and partly self occupied and may or may not be vacant Sec 23(3).

• CATEGORY V

House property which is divided into different portions.

Question 2 [V. Imp.]: Write a note on computation of Annual Value, in case of a House Let Out throughout the year.

Answer:

Computation of annual value, in case of a house let out throughout the year Section 23(1)(a), (b) Annual value shall be computed in two steps:

• Gross Annual Value

• Net Annual Value (Gross Annual Value minus Municipal Taxes) Gross Annual Value Section 23(1)(a), 23(1)(b)

Gross annual value means the reasonable rental value of a house. It is computed with the help of 4 rents.

1. Fair rent i.e. the rent of similar types of buildings in the same locality.

2. Municipal valuation i.e. rental value determined by the municipality for the purpose of charging municipal tax.

3. Standard rent i.e. the highest possible rent as per Rent Control Act.

4. Rent received or receivable

Gross annual value shall be computed in the manner given below:

1. Compare Fair Rent and Municipal Valuation and select the higher.

2. Compare the rent so selected with Standard Rent and the lower of the two shall be considered to be Expected Rent. (It is also called Annual Letting Value)

3. Compare Expected Rent with Rent Received or Receivable and the higher shall be considered to be Gross Annual Value.

Example

If Fair rent is `15,000 p.m. and Municipal valuation is `16,000 p.m. and Standard rent is `15,500 p.m., expected rent shall be `15,500 p.m.

If in the above case, rent received or receivable is `17,000 p.m., Gross Annual Value shall be `17,000 p.m.

Illustration 1: Mr. X has one house property which is let out @ `80,000 p.m. Fair rent ` 90,000 p.m., Municipal Valuation `70,000 p.m., Standard Rent `81,000 p.m. Municipal tax paid `60,000 and interest paid on loan for construction of house property is ` 50,000.

Compute his Income Tax Liability for A.Y 2013-14.

Illustration 2: Mrs. X has let out one House property @ `62,000 p.m., Municipal Valuation `72,000 p.m., Fair Rent `90,000 p.m., Standard Rent `1,00,000 p.m., Municipal Tax paid `40,000 and Interest on loan taken for construction `60,000

She has completed the age of 60 years on 01.04.2013.

Compute Income Tax Liability for the A.Y 2013-14.