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Income from house property includes an income which has been charged from a property which is an immoveable property i.e., house, building, certain land areas etc. Generally for to calculate that an income is taxable or not which is generated from a house property there are three conditions which are to be fulfilled which includes the property should consists of any building or lands appurtenant thereto, assessee should be owner of the property and the property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income tax. This is a general idea as to what all constitutes under the income from house property. According to the Income Tax Act, under Section 22 details with respect to the handling of income from house property is given and then later on from section 23 to 27 few complexities with respect to house property income have been dealt with. This was a general idea with respect to house income property but there are few complex issues which researcher shall be dealing in the research paper later on in detail such as deemed owner, property acquired, subletting and cases where such income is not taxable. 1.1 Research Proposal: To identify what all include as income under the head of “Income from House Property” and how to compute the same. 1.2 Research Questions: (a) Whether the income from house property is taxable under the law? (b) Whether the deemed owner is considered similar to the owner for the purpose of computing tax under income from house property? (c) Whether house property includes all kinds or types of properties related to house? (d) Whether the basis for computing income form let out house is different from in general? (e) Whether the criteria for computing income from self occupied property is different form house property income?
1.3 Hypothesis: (a) Yes, the income from house property is taxable under the law. (b) Yes, the deemed owner is considered similar to the owner for the purpose of computing tax under income from house property. (c) Yes, house property includes other kinds or types of properties related to house also. (d) No, the basis for computing income form let out house is different from in general. (e) Yes, the criterion for computing income from self occupied property is different form house property income. 1.4 Research Methodology: The research methodology been employed by the researcher is doctrinal in nature and secondary sources are used i.e., various books and case books have been referred for the studies which the researcher found in the library of National Law University, Delhi and internet also. The researcher also used various electronic databases like Manupatra Online and SCC Online. 1.5 Scheme of Chapterization: In the very first chapter researcher dealt with a brief overview about the research paper and tries to explain the subject matter in brief. In the second chapter researcher has dealt with explanation and detailed description of topic and tried to explain the evolution of the same. Further in third chapter researcher has analyzed the topic with the help of same case laws. In the fourth chapter researcher shall be dealing with regulatory mechanism and concluding the same by suggesting few reforms.
CHAPTER-II HOUSE ‘PROPERTY’ AND ‘INCOME’
Income from house property is one of the heads into which different categories of income included in the total income have been classified. Basically, Section 9 of 1922 Act, which dealt with taxability of income of house property has been broken up and redrafted into six sections, viz. section 22 to section 27, under the1961 Income Tax Act. Property income is notional, that is why the method of accounting adopted by the assessees for accounting the property income in his books would be irrelevant. 1 But a line may be drawn where the property is not capable of being let out, as was found in a case, where the property was required to be permitted to be used by the financier under the terms of finance agreement, financed by non-refundable deposits and contribution of shares by an agreement so that income, if any, could not be treated as income from property but only as income from business.2 Since the income is assessed not merely on accrual basis or solely on receipt basis, both on the annual value of the property with ad hoc deductions not always based upon actual expenditure, the income that is assessable as income from property is understood to be notional income. Even where a property is occupied by the tenant free of rent the landlord is assessable on a notional income with reference to the annual value. The manner of determination of annual value is discussed under Section 23 of the Income Tax Act, 1961.3 2.1 Constituents of Property: The word property is used in a broader sense to consist of buildings or lands appurtenant thereto. Because of use of word „or‟, it is sometimes argued that lands appurtenenat thereto would by itself be a property, so that its income would be taxable as income from house property. Such an interpretation is not correct, because income from mere land is not treated as income from property.4 The interpretation of law that in some context, the word „or‟ has to be understood as „and‟ and would so apply in this context, so that the land which is appurtenant to a property alone is treated as part of the property.
Hope India Ltd. V. CIT (1999) 238 ITR 740 (cal). Shree Nirmal Commercial v. CIT (1992) 193 ITR 694 (Bom) 3 A.C. Sampath Ayengar, LAW OF INCOME TAX, vol. 2, 11 th ed. 2011, p.2673. 4 Ibid.
drying grounds such as those in a rice mill or coffee-curing factory. (b) Lands appurtenant thereto means. .C. Sampath Ayengar.where the foreign property is assessable as in the case of a resident and ordinarily resident. that is the annual value of buildings or lands appurtenant thereto. building let for office use. a shop or a bazaar and would also include stalls and platforms in market enclosures. The word building would also include a part of a building.4 The income chargeable under this head is confined to the annual value of what may be called house property. p.the word buildings would include buildings occupied or intended for residence. refers to property “Consisting of building and lands appurtenant thereto”. 1961. CIT (1961) 42 ITR 49 (SC).it would include when the buildings are residential buildings approach roads to it from the public street compounds and play grounds courtyards kitchen gardens. 1961. (c) Foreign Property. Where a building is a non-residential building such as factory.7 For example. A. 5 6 CIT v. LAW OF INCOME TAX. Terms in detail are as follows6: (a) Buildings:. though words buildings and house property has not been defined in the act. 11 th ed. they should be understood in the same sense as in their ordinary meaning. attached to buildings for convenient enjoyment thereof would form part of buildings. etc. busti huts which have a short life span for like 5-6years may also be treated as house property for computation of income through it. or for shortage. but also a person who holds an interest in the property. the lands appurtenant thereto would consist of parking spaces. it consisted of kutcha plinth on open land. the play grounds such as tennis or a badminton court for the amenities of the employees of the factory. vol. 7 East India Housing v. and other publics auditoriums used for stage and cinema shows. various roads connecting one department of the factory with another. The term property as described in Section 22 of the Income Tax Act. or for warehousing or for use as a factory. Though lands was appurtenant to a bulding. 2. music halls. the income therefrom is required to be computed as income from house property under Section 22 of Income Tax Act. etc. It would include dance halls. Kaniyalal (1979) 120 ITR 892 (Cal).5 The charge is not only on the owner of the buildings or land appurtenant thereto. 2011..2673.
provided income from such business or profession can be assessed to tax.8 The principle is that if the owner of the property carries on a business a property owned by him the income from that property must be assessed as only income from business.2678. Guruswamy10 .the exemption of income from property used for assessee‟s business must also be granted in cases where the property of an assessee is used by a partnership business in which the assessee is also a partner. it was held that it would not be open to the Hindu Undivided Family to claim that the relevant premises were occupied for the business carried on by Hindu Undivided Family. 11 th ed. CIT (1947) 15 ITR 263 (All) A.11 8 9 Upper India Chambers v. In CIT v. 11 Supra n 9 at p. . a restricted meaning was given to the occupation as: (a) Words the occupation of the property in the context of section 22 must mean occupation as owner or his own occupation. If a building is occupied by an assessee for the purpose of any business or profession carried on by him. 10 (1984) 146 ITR 34 (Kar). whether or not any assessment has been on any resultant profits.where the premises were owned by Hindu Undivided Family but used by a partnership firm in which karta and the individual members were partners.5 2. The kinds of property which can be dealt under such exception are as follows:9 (i) Property used in Partnership business with owner as partner. 2. Sampath Ayengar. LAW OF INCOME TAX. (ii) Property owned by Hindu Undivided Family used by firm with karta as partner. p. Giving the word occupation a meaning “occupation as owner or his own occupation” would require the addition of some words to section or to rewrite the exemption clause. vol. (b) The fact of computation must go with the owner of the building which means actual occupation for the purpose of his business or profession. 2011.2677. then it is excluded from consideration under this head.2 Exemption: Exemption of portion occupied for taxable business is provided.C.
there should be a right to exemption.6 (iii) Mutual Concerns. it was found assessable as income from other sources. their family and friends. However in cuttack club v. CIT the principle of mutuality was recognised in respect of mutual association where accommodation was given to the members. In the case of such companies or associations the portion of building occupied by them for purpose of their business would fall to be taxed under this head. CIT. . The club was allowed exemption on the principle of mutuality but subject to an observation that as long as the dealings do not disclose the profit earning motive and are not tainted with commerciality.Mutual companies and mutual associations by reason of their mutial character are in certain circumstances not assessable at all. In Presidency Club v.
factory building. 14 Ibid. therefore. 46th ed. p. It does not make any difference at all if the property is owned by a limited company or a firm. include residential house (whether let out or self occupied). under the head “income from House Property”. The income to be taxable should be “Income from House Property”. if a house property is occupied by a taxpayer for the purpose of business or profession carried on by him (the profits of which are chargeable to income tax). of which the assessee is owner. TAXMANN INCOME TAX. godowns.2679. Building will. However. the phrase „lands appurtenant thereto‟ has also been used.214. It is not only the thing which is the subject matter of ownership but is taken to mean „dominon‟ or right of ownership or even partial ownership.210. etc. Vinod Singhania and Dr. as long as they are not used for business or profession by owner. property is understood in wide sense.13 3. 15 Supra n 9 at p. And the purpose for which the building is used by the tenant is also immaterial.14 In the earlier discussion. office building. for purposes of taxation under sections 22 to 27 of the Income Tax Act. of course. Tax imposed under section 22 is a tax on „annual value‟ of house property and is not a tax on “House Property”. p. . Thus. such wider definition of property is not relevant. annual value of such property is not chargeable to tax under the head „Income from House Property‟.7 CHAPTER-III HOUSE PROPERTY INCOME UNDER THE ACT12 In common parlance. income from letting out godowns will be taken as income from house property. However. Monica Singhania.1 SECTION 22 of the Income Tax Act 1961: Section 22 provides for taxation of „annual value‟ of a property consisting of any buildings or lands appurtenant thereto. The existence of a building is. 1961 Dr.15 12 13 The Income Tax Act. It needs to be clarified in this context that income from letting of vacant plots of land when there is no adjoining building will not be taxed under this head (but will be taxed as income from other sources).2011. an essential prerequisite. flats.
In this case. But in the context of Section 22 of the Income tax Act. there has been some refinement in the concept of ownership after the decision of the Surpeme Court in the case of CIT v. In view of this.1 Conditions Necessary for Taxing Income From House Property: These are: (a) The property should consist of any building or land appurtenant thereto. Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income or even if income is received by some other person.206. 46th ed. namely. if a person makes gift of rental income to a friend or a relative. . not on behalf of the owner but in his own right18. the property income cannot be charged to tax under the head „Income from House property‟. the profits of which are chargeable to tax.19. Podar Cement (P) Ltd. the owner must be that person who can exercise the rights of the owner. „owner‟ is a person who is entitled to receive income from the property in his own right. having regard to the ground realities and further having regard to the object of the Income tax Act. where a property is handed over to a purchaser to enjoy fruits of that property by 16 17 Dr. S. CIT  82 ITR 570 (SC) 19 (1997) 226 ITR 625 (SC). (c) The property should not be used by the owner for the purpose of any business or profession carried on by him.2 Owner: For the purpose of section 22. CIT (1969) 73 ITR 438 (Delhi). (b) The assessee should be the owner of the property. for the purpose of section 22. Kartar Singh v. annual value of property is taxable in the hands of the donor. without transferring ownership of the property. However. Registration Act etc. Kartar Singh v. CIT (1969) 73 ITR 438 (Delhi) 18 RB. “to tax the income‟‟. TAXMANN INCOME TAX. p. even if rental income is received by the donee17 S. the Supreme Court has expressed the view that under common law „owner‟ means a person who has got valid title generally conveyed to him after complying with the requirements of law such as the Transfer of Property Act. Vinod Singhania and Dr. Unless all the aforesaid conditions are satisfied. The requirement of registration of the sale deed in the context of section 22 is not warranted.2011. the concept hitherto understood even in court decisions has been that the owner has to be a legal owner.8 3. For instance. Monica Singhania. In other words.16 3.1. Jodha Mal Kuthiala v.
is deemed as the owner of that building or part thereof] [Sec.2689. However.in/Archive/House_Property.incometaxindia. LAW OF INCOME TAX. 20 21 http://www.gov. and for assessment of income in the hands of beneficial owner.e.pdf/ accessed on 10th April 2012. p. Persons who purchase properties on the basis of Power of Attorney and under long term leases (12 months & more) are also deemed to be owners. 11 th ed.9 the builder. 2011.3 Deemed Ownership: In the following situations the ownership shall be deemed for taxing income from house property in view of section 27 of the Act21: (i) When house property is transferred to spouse (otherwise than in connection with an agreement to live apart) or minor child (not being a married daughter) without adequate consideration (Section 27(i)). 27 (iiib)]. (iv) A person who is allowed to take or retain possession of any building (or part therof) in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. when a flat is allotted by a cooperative society or a company to its members/shareholders who enjoy the flat. 1882. 2. the purchaser is to be treated as „owner‟ of that property even though no registered document has been executed in his favour. if a person takes a house on lease for a period of 12 months or more. A.20 3. The concept of deemed owner is introduced to prevent misuse like transferring properties in the name of spouse or minor child etc. is deemed as the owner of that building (or part thereof) [Sec. in such situations the allottees are deemed to be owners and it is the allottees who will be taxed under this head. Thus.C. to whom a building or part thereof has been allotted or leased under a house building scheme (Section 27(iii)). 27 (iiia)]. (v) A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building (or part thereof) by virtue of any such transaction as is referred to in section 269UA(f) [i. vol. Sampath Ayengar. . technically the co-operative society/company may be the owner. (ii) In the case of holder of an impartible estate (Section 27(ii)) (iii) A member of a cooperative society. company etc.
The above position will not change even if the buildings are let out to government authorities for locating their undertakings like Banks. It shall. provided the dominant purpose of letting out the accommodation is to enable the assessee to carry on his business more efficiently and smoothly.gov. income from paying-guest accommodation is taxable as income from business. Also.org/uploaded_document/Income%20Tax-Income%20from%20House%20Property72.4 Co-Ownership: Section 26 concerns properties which are owned by coowners. because the property in this case is considered to be used by the owner for his own business. therefore. 46 th ed. the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. It is possible that in a particular year the profits are not sufficient enough to attract tax liability.22 3. This section provides that where property consisting of building or buildings and land appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable such persons shall not. Monica Singhania.24 Where house property owned by a partner is used by the firm (neither it is let out to the firm nor any rent is obtained for it) for its business purposes. TAXMANN INCOME TAX.pdf/ Accessed on 29th March 2012. 24 http://gcommerce. Vinod Singhania and Dr. What it means is that the income from such business or profession is not exempt from tax. Police Station.in/sites/upload_files/revenue/files/1.pdf/ accessed on 12th April 2012. the partner is entitled to the exemption. In such an eventuality.10 3. . the income from such property is not taxable under this head. etc. Chargeability to tax does not mean that the income is actually taxed.5 Property used for own business or profession The owner of a house property is not liable to tax under this head if the property is used by him for his own business or profession. But the business or profession should be such whose income is chargeable to tax. p.2011. Central Excise Office. but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.23 If an employer builds quarters for residential use by his employees and the letting out of these quarters is considered as incidental to his business.208.. The reason for this exemption is that the notional rent of property is not allowable 22 23 Dr. Post Office. be assessed as an association of persons. in respect of such property. http://dor. be taxed as business income.
provisions of lifts. 3. Sampath Ayengar.C. the composite rent received by the owner of the property is not to be split up and nothing is taxable as income from house property. Ibid.26 3. In fact. 11 th ed. watch and ward facilities. then such income is taxable either as business income or income from other sources. auditoriums. .7 Rental income of a dealer in house property If a person is engaged in the business of purchasing house properties with th purpose of letting them on high rents and disposing off those properties which are not profitable for this purpose. apart from obtaining the rent of the building. equipment. staff. Any rent from house property. etc.2687. charges for lift. It is commonly understood that the charges per day for a room in a hotel are not specifically for the room only. air conditioning. the rental income from such property will not be taxed as business income. It will remain so even if the property is held by the 25 26 A. etc. theatres. furniture. machines. plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable.) is charged to tax under the head „Profits and gains of business or profession‟ or under the head „Income from other sources‟. LAW OF INCOME TAX.11 as a permissible deduction while computing business income. The amount so recovered is known as composite rent.6 Composite Rent: In some cases. etc. if a person carries on the business or profession in his own house property. is taxable under the head „Income from house property‟. security. etc. This happens in the case of letting out of hotel rooms. If there is letting of machinery. whether received by a dealer or a landlord.). composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual value under section The amount which relates to rendition of the services (such as electricity supply. the owner obtains rent of other assets (like furniture) or he charges for different services provided in the building (for instance.25 If the owner of a house property gets a composite rent for the property as well as for services rendered to the tenants. 2. Similar is the case where a cinema house is let out at composite rent charged for the building. power consumption. a major portion of room tariff is for the amenities and services provided in the hotel. supply of water. 2011. p. In all such cases. vol.
28 27 28 Supra n 22 at p. A resident but not ordinarily resident or a non-resident is. Mere existence of dispute as to title cannot hold up an assessment even if a suit has been filed. its annual value will be computed as if the property is situated in India. 3. Ibid. chargeable under section 22 in respect of income of a house property situated aboard.8 Disputed ownership If the title of ownership of a house property is disputed in a court of law. If tax incidence is attracted under section 22 in respect of a house property situated abroad. Generally the recipient of rental income or the person who is in possession of the property is treated as owner. however.9 House property in a foreign country A resident assessee is taxable under section 22 in respect of annual value of a property in a foreign country.12 assessee as stock-in-trade of a business or if the assessee is a company which is incorporated for the purpose of building houses and letting them on rent. provided income is received in India during the previous year. . the decision as to who is the owner rests with the Income-tax Department.27 3.212.
however.000/-.29 It is not necessary.000/- 29 30 http://www. 24. if a property is let and was vacant during any part or whole of the year and due to such vacancy. the latter will be annual value. Where. yet it is not in that sense a tax on income but upon inherent capacity of such property to yield income and for this „annual value‟ is the yardstick. 18. the rent received is less than the notional rent. 24. the standard rent if any under the Rent Control Act. 18.000/. let out.227. 36. . The municipal value of the property. Where the actual rent received is more than the reasonable return.000/. in case where the tenancy is affected by manipulation.for the purpose of the Income-tax Act. such lesser amount shall be the Annual Value.000/. that the property should be actually let.pdf/ accessed on 3rd April 2013 Ibid. close relationship or such other consideration).24. The inherent capacity has been defined as the sum for which the property might reasonably be expected to be let from year to year.and actual rent received is Rs. the cost of construction. it has been specifically provided that the actual rent will be the annual value. If the actual rent received is Rs.220. the rent of similar properties in the same locality are relevant factors for the determination of the annual value.161.000/. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is.1 Determination of Annual Value of House Property Income: The determination of „Annual Value‟ is important in the context of taxation of income from House Property because though the tax under the head „Income from house property‟ is tax on income.the annual lettable value will be taken at Rs. emergency. the actual rent is less than the reasonable rent (e.000/-.for six months the Annual Value shall be Rs. For example. Here. in case of a house. 18. whose municipal valuation is Rs.g. in fact.36. the annual value would be Rs. if the property was vacant for six months and the rent received is Rs.000/.and municipal valuation is Rs.86/18882sm_dtl_finalnew_cp5.13 CHAPTER-IV DETERMINATION OF INCOME FROM HOUSE PROPERTY 4.30 However.
pdf/Accessed on 10th April 2012. it has been specifically provided that the annual value of such a property would be taken to be nil subject to the following conditions32: (a) The assessee must be owner of only one house property. the house property in Bangalore cannot be used for self-occupation and notional income therefor would normally have been chargeable although he derives no benefit from the property. In such case.org/material/house%20property-AY0910. If. the annual value is taken as „nil‟. business etc. its annual value under section 23(1) cannot exceed the standard rent (fixed or determined) under the Rent Control Act unless it is actually let out for a higher amount. say in Bangalore. one is having more than one house property using all of them for self-occupation.3 Annual Value of one house away from work place A person may own a house property. (b) He is not able to occupy the house property because of his employment. He is transferred to Chennai where he does not own any house property and stays in a rental accommodation.org/uploaded_document/Income%20TaxIncome%20from%20House%20Property72. 32 http://www.14 Where the property is subject to Rent Control Act. The annual value of the other self occupied house properties will be determined on notional basis as if these had been let out.31 4. he is entitled to exercise an option in terms of which. 31 http://gcommerce. the value of one house property as specified by him will be taken at nil. (d) He has to reside at the place of employment in a building not belonging to him [Section 23(2)(b)]. 4. which he normally uses for his residence. To save the taxpayer from hardship in such situations. (e) He does not derive any other benefit from the property not occupied. (c) The property should not have been actually let. being away from place where the property is situated.2 Determination of Annual Value of Self-occupied property: In case of one self-occupied house property which has not been actually let out at any time.wirc-icai.pdf/ Accessed on 12th April 2012 .
Where the actual rent received is more than the reasonable return. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is.2690. municipal taxes are to be deducted if the following conditions are fulfilled33: (a) 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 higher figure will be taken for the purpose of Incometax. It is not necessary that the property should actually be let out. the rent of similar properties in the same locality. close relationship or such other consideration). (b) The Municipal taxes must be borne by the landlord. subject to Rent Control Legislation. when the actual rent received or receivable is higher than the notional value as calculated above. 33 A. Amount left after deduction of municipal taxes is net annual value. 2. From the annual value as determined above. Sampath Ayengar. the latter will be the annual value. When. as mentioned earlier. The basis of calculating Income from House property is the „annual value‟.g. (If the municipal taxes or any part thereof are borne by the tenant. the rent received is usually taken as the annual lettable value. in fact. . the notional annual value will have to be found and adopted. 2011. if any. The municipal taxes may be claimed on payment basis i. LAW OF INCOME TAX. The standard rent would be the Annual Value in the case of properties.4 Determination of Annual Value of Let out house properties In respect of a let out house property. the rent is not indicative of the actual earning capacity of the house. these will not be allowed. The municipal value of the property.. p.e.15 4. 11 th ed. Where.. (Where the municipal taxes have become due but have not been actually paid. the same will not be deductible). the cost of construction. however. however. are all pointers to the determination of annual value. the standard rent. under the Rent Control Act. the actual rent is less than the reasonable rent (e.C. it has been specifically provided that the actual rent will be the annual value. let out. vol. in case where the tenancy is affected by fraud. emergency. However. only in the year they were paid even if the taxes belonged to a different year). (c) The municipal taxes must be paid during the year.
34 Dr. For this purpose. although such valuation is given due consideration by the Assessing Officer. Monica Singhania. (a) Actual Rent: It is the most important factor in determining the annual value of a let out house property.16 4. 46th ed. TAXMANN INCOME TAX. Municipal Valuation of the Property 3. its reasonable expected rent cannot exceed the standard rent. (b) Municipal Valuation: Municipal or local authorities charge house tax on properties situated in the urban areas. Sometimes a tenant pays a composite rent for the property as well as certain benefits provided by the landlord. p. Vinod Singhania and Dr. the evidence provided by transactions of other parties in the matter of other properties in the neighborhood. Such composite rent is to be disintegrated and only that part of it which is attributable to the letting out of the house property is to be considered in the determination of the annual value. This rule is applicable even if a tenant has lost his right to apply for fixation of the standard rent. Moreover. (d) Standard Rent: Standard Rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act. they have to determine the income earning capacity of the property so as to calculate the amount of house tax to be paid by the owner of the property. It does not include rent for the period during which the property remains vacant. Rent payable by the tenant (actual rent) 2. more or less comparable to the property in question. it does not include the rent that the tax payer is unable to realize. if certain conditions are satisfied. .2011. Although two properties cannot be alike in every respect. This means that if a property is covered under the Rent Control Act. But this valuation cannot be treated as a conclusive evidence of the rental value of the property. is relevant in arriving at reasonable expected rent. Standard rent payable under the Rent Control Act. (c) Fair Rental Value: It is the rent normally charged for similar house properties in the same locality. Fair rental value (value of a similar property in the area) 4.218.5 Gross Annual Value [Section 23(1)] The following four factors have to be taken into consideration while determining the Gross Annual Value of the property34: 1.
— (a) the tenancy is bona fide. (b) the defaulting tenant has vacated. This rule talks about unrealised rent and the provision is as follows: Rule 4. For the purposes of the Explanation below sub-section (1) of section 23. or steps have been taken to compel him to vacate the property. (d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. (c) the defaulting tenant is not in occupation of any other property of the assessee.17 While discussing section 23 it also becomes important to talk about the Income Tax Rules as Rule 4 of the Income tax rule directly with section 23 of the Income Tax Act and is the only provision which deals with income from house property as contained in part B of the rule. the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where.] .
Interest payable on interest will not be allowed.V DEDUCTIONS UNDER SECTION 24 Two deductions will be allowed from the net annual value (which is gross annual value less municipal taxes) to arrive at the taxable income under the head „income from house property‟. The borrowals may be for construction/acquisition or repairs/renewals.2777. of the property.. The following points are to be kept in mind while claiming deduction on account of interest on borrowed capital: 1. of the property. It has to be borne in mind that the deductions mentioned here (section 24) are exhaustive and no other deductions are allowed. (b) Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. Amount of interest payable for the relevant year should be calculated and claimed as deduction.. The deductions admissible are as under35: (a) Statutory deduction: 30 per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property. . A fresh loan may be raised exclusively to repay the original loan taken for purchase/ construction etc. 2. the entire amount of interest accrued during the year is deductible. 35 Supra n 33 at p. the interest on the fresh loan will be allowable. In case the property is let out. It is immaterial whether the interest has actually been paid during the year or not. there should be a clear link between the borrowal and the construction/purchase etc.18 CHAPTER. However. In such a case also. If money is borrowed for some other purpose. interest payable thereon cannot be claimed as deduction. irrespective of the actual expenditure incurred. 3.
In such a case. The interest paid/payable for the pre-construction period is to be aggregated and claimed as deduction in five equal instalments during five successive financial years starting with the year in which the acquisition or construction is completed. Brokerage or commission paid to arrange a loan for house construction will not be allowed. is termed as the pre-construction period. This deduction is not allowed if the loan is utilized for repairs.2778. When interest is payable outside India. 5. (c) Interest attributable to period prior to construction/acquisition Money may be borrowed prior to the acquisition or construction of the property. . renewal or reconstruction.36 36 Supra n 33 at p. whichever is earlier. the period commencing from the date of borrowing and ending on the date of repayment of loan or on March 31 immediately preceeding the date of acquisition or completion of construction.19 4. no deduction will be allowed unless tax is deducted at source or someone in India is treated as agent of the non-resident.
6. Clause 24 reads as under : 24. if any. 2010 Income from house property to be recognised on actual: The DTC proposes to tax only actual receipts and accruals from letting out house property. of the property is in the nature of trade. (2) The income from any house property shall be computed under this head notwithstanding that the letting. such persons shall be assessed as an association of persons in respect of such property. (4) In a case where the shares of the owners of the house property referred to in sub-section (3) are not definite and ascertainable. Proposed clauses in the DTC Bill.1 Clause 24 – Income from House Property Clause 24 provides that the income from letting of any house property owned by any person shall be computed under the head income from house property. There are various clauses which were described in coherence to the existing sections under the Income Tax Act. This simplifies the tax provision as currently under the Income Tax Act. notional rental value of house property (even if the house property has not been let out) is to be calculated and the higher of actual or notional is taken as the rent to be taxed. (3) The income from any house property owned by two or more persons having definite and ascertainable shares shall be computed separately for each such person in respect of his share. (1) The income from letting of any house property owned by any person shall be computed under the head ―Income from house property. commerce or business.20 CHAPTER-VI PARLIMENTARY COMMITTEE AND REPORT ON DTC Government seeks to reform the Income Tax law and with that view came up with the Direct Tax Code Bill and this report talks about the proposed changes and the respective reforms in the Income Tax law. As the report starts by describing the main aspect of taxation with respect to House Property Income. (5) The provisions of this section shall not apply- . 1961.
(b) to a house property which is not ready for use during the financial year. which— (i) is used by the person as a hospital. shall be chargeable to income-tax under the head Income from house property.1. the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year. 1961 Under Section 22-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner. convention centre or cold storage. hotel. . or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a).21 (a) to the house property. Under Section 23. other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income tax. and (ii) forms part of Special Economic Zone. the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.1 Existing provision in the Income Tax Act. the amount so received or receivable. or any portion of the house property. or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a).(1) For the purposes of section 22. 6. the income from which is computed under the head income from business.
the income from which is computed under the head income from business. whichever is higher. it would be unviable for such enterprises to make larger investment into such infrastructure projects. (Bombay Chartered Accountants‟ Society). which IS LET OUT AND— (i) is used by the person as a hospital. (b) to a house property which is not ready for use during the financial year. the annual value of the property is deemed to be the fair market value or the actual rent received or receivable. the Ministry in their post-evidence information submitted to the Committee stated as follows : Under the current provisions of the Income-tax Act relating to income from house property. If the scheme of taxation is not amended. no rental value will be imputed to a house property. litigation arising from the issue of determining fair market value will be substantially reduced. . Under the provisions proposed in the DTC. hence gross rent will be based on the actual rent received or receivable. much needed for the country. (Madras Chamber of Commerce and Industry) (ii) Section 24(5) may be re-worded as follows: The provisions of this section shall not apply(a) to the house property. convention centre or MULTIPLEXES.1. or any portion of the house property. .cold storage. hotel.22 On being asked during evidence as to what benefit will a taxpayer get as a result of modified provisions relating to house property as contained in DTC.2 Suggestions: Suggestions as received through written memorandum from various institutions on this clause are as under : (i) Impact on malls. Therefore. (ICAI) (iii) The word ―or be used after sub-clause (i) in sub-clause (5). MALLS OR BUSINESS CENTRES and OR (ii) forms part of Special Economic Zone. multiplexes and IT parks Such ventures are taxed as business income and be allowed reduction of all operating expenses and depreciation so that a high tax incidence on such ventures could be avoided. 6.
1. For the removal of doubts. Thus. the earning of rent and incurrence of expenditure on maintenance. it is hereby clarified that income from house property shall not include any income from a house or other accommodation allotted to an employee or other person engaged by the assessee. (iii) Suggestion is acceptable.23 6. the clause 24(5)(b) may not be required and will be considered for deletion. of the property is in the nature of trade.3 Comments: The written comments received from the Ministry of Finance (Department of Revenue) in regard to all the above said suggestions are given as under : (i) Malls multiplexes IT parks are let out to business entities who in turn earn income under the head business. Accordingly. it would be appropriate to not consider the same as Income from house property but as Income from business. The consideration received by owner is mainly on account of utilization of space by these businesses and for some incidental services/facility. notwithstanding that the letting. Further. it is suggested that subsection (2) of section 24 of the Code may be modified as under:(2) The income from any house property shall be computed under this head notwithstanding that the letting. Hence this is taxable under head House property. ONGC and Petroleum Federation of India in their written memoranda suggested as under : Clause 24(2) may be modified so as to provide that the income from house property shall not include any income from a house or other accommodation allotted to an employee or other person engaged by the assessee. commerce or business. As such. of such accommodation is incidental to the employer„s business. The provisions give certainty and avoid litigation in this regard. is in the nature of trade. etc. would mean denial of deduction of permissible expenditure . Since allotment of accommodation to employees is not on account of employer„s desire to earn rental income but to facilitate the employer„s business. Section 24(2) of the code provides that ―income from any house property shall be computed under this head. (ii) As the income from house property is taxable on actual receipt basis under the DTC. if any. commerce or business.
is also proposed to be treated under the head. income from commercial letting out of properties such as malls. Admissibility would now be restricted to what is provided under the property head. However. The Committee are of the view that it would be unfair to categorise all kinds of rentals as „income from house property‟ regardless of whether the letting of the property was in th e nature of trade. the gross rent shall be the amount of rent received or receivable for such part of the financial year for which the house was not vacant. recommend that the definition of “house property” should be re-drafted so that the distinction between commercial and non-commercial property is clearly brought out. The Committee are not convinced with such a categorization of income and would. “income from house property” rather than under the head “income from business”. commerce or business. The Committee note that under the Code. therefore. As per the notes on clauses as indicated in the Bill. for which such property is let out. multiplexes. for the financial year or part thereof. The written comments as received from the Ministry of Finance (Department of Revenue) on the above said suggestions are as under : Will be considered for providing appropriate exception to deal with issues so that property owned/provided to the employee would not be charged under the head house property. income from house property is proposed to be made taxable on actual receipt basis. The Committee would. therefore. 6. This is unfair. the said clause also provides that : Where such property was vacant during any part of the financial year. recommend that a distinction should be made between commercial and noncommercial renting of properties and the income head be determined accordingly.24 under the business head incurred by the assessee in carrying on the business of letting of the property. . etc. directly or indirectly.2 Clause 26 – Scope of gross rent Clause 26 as per the Bill reads as under : The gross rent in respect of a house property or any part of the property shall be the amount of rent received or receivable.
namely:— . What happens if the use of property is permitted in exchange for some benefit. The words directly or directly would not cover such arrangement. as agreed to by the Ministry.(1) For the purposes of section 22. or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a).2 Suggestions: The written suggestion as received from an expert is given as under : Amount received or receivable would mean cash. (1) The deductions for the purposes of computation of income from house property shall be the following. or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a). The Committee recommend that Clause 26 is recast to cover rental arrangements which may be on considerations other than cash.2. 6.2. it is neither letting nor receiving the amount. People would be induced to seek such or like arrangements. the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year. This would not have been possible under the IT Act. Property is enjoyed without incurring of any liability to pay tax. the Ministry of Finance (Department of Revenue) in their written replies stated that the suggestion will be considered. the amount so received or receivable. the amount so received or receivable. In response to the above said suggestion. 1961 Under Section 23.3 Clause 27 – Deductions from gross rent Clause 27 deals with the deductions from gross rent for computation of income from house property. In that case.25 6. Income in respect of property would not then be taxable.1 Existing provision in the Income Tax Act. Clause 27 reads as under : 27. 6.
(not being a charge created by the assessee voluntarily or a capital charge). a sum equal to one-fourth of the annual value. to the extent the amount is actually paid by him during the financial year. . and collection of rent from. repaired. (b) a sum equal to twenty per cent. be computed after making the following deductions. constructed.1 Existing provision in the Income Tax Act. the amount of any interest payable on such capital. or (ii) on loan taken for the purpose of repayment of the loan referred to in sub-clause (i).26 (a) the amount of taxes levied by a local authority in respect of such property. (ii) The amount of any premium paid to insure the property against risk of damage or destruction. (2) The interest referred to in clause (c) of sub-section (1) which pertains to the period prior to the financial year in which the house property has been acquired or constructed shall be allowed as deduction in five equal instalments beginning from such financial year. (c) the amount of any interest. (v) Where the property has been acquired.— (i) on loan taken for the purposes of acquisition. the property. towards repair and maintenance of such property. renewed or reconstructed with borrowed capital. (3) The interest deductible under sub-section (2) shall be reduced by any part thereof which has been allowed as deduction under any other provision of this Code. repair or renovation of the property. (iv) Where the property is subject to a ground rent. construction. subject to the provisions of sub-section (2). the amount of such charge.3. 6. the amount of such ground rent.Income chargeable under the head "Income from house property" shall. 1961 Under Section 24. (iii) Where the property is subject to an annual charge. namely :(i) In respect of repairs of. of the gross rent determined under section 26.
as the case may be. Provided further that where the property is acquired or constructed with capital borrowed on or after the 1st day of April. 1999 and such acquisition or construction is completed before the 1st day of April. if any. where the property is let out in parts. that portion of the annual value appropriate to any vacant part. as reduced by any part thereof allowed as a deduction under any other provision of this Act. (2) No deduction shall be allowed under sub-section (1) In respect of property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2). the interest. (vi) Any sums paid on account of land revenue or any other tax levied by the State Government in respect of the property. (viii) Subject to such rules 421 as may be made in this behalf. 2001. Explanation : The deduction under this clause shall be made irrespective of whether the period during which the property or. or sub-section (3) of section 23 : Provided that nothing in this sub-section shall apply to the allowance of a deduction under clause (vi) of sub-section (1) of an amount not exceeding thirty thousand rupees in respect of the property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2) of section 23 or sub-section (3) of section 23. the provisions of the first proviso shall have effect as if for the words "thirty thousand rupees". payable on such capital for the period prior to the previous year in which the property has been acquired or constructed. . the amount in respect of rent from property let to a tenant which the assessee cannot realise. that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or. part of the property was vacant precedes or follows the period during which it is let. which is proportionate to the period during which such part is wholly unoccupied.27 Explanation: Where the property has been acquired or constructed with borrowed capital. the words "seventy-five thousand rupees" had been substituted. (vii) Where the property is let and was vacant during a part of the year. shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years.
1961. The deduction should be allowed at 30% as present ITA. ICSI and Bombay Chartered Accountants‟ Society) (ii) The words repairs and maintenance‖ may be either omitted or replaced by the word standard deduction‖. (Bombay Chartered Accountants‟ Society). 6. Service tax may be allowed as a deduction from gross rent. it is suggested that deduction in respect of unrealized rent should be provided in section 27 on the lines of provisions of present Income-tax Act. Further.3. (ICWAI. Adequate provisions should be made for depreciation in respect of such assets which are let out with house property. Panchayat etc.3. The suggestion regarding provision of unrealized rent will be considered. .3 Comments: The comments as received from the Ministry of Finance (Department of Revenue) on this suggestion are as follows : Clause 27(1)(a) already provides for deduction of taxes levied by local authorities as municipal taxes are levied by the local authority only in the three tier system of the Government. 6.28 (3) The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-clause (ii) of clause (a) of sub-section (2) of section 23 shall not exceed the annual value of the property as determined under that section. Further the term local authority as defined in clause 314(151) of DTC includes all constitutional local governments like municipality. Some other suggestions as received through written memorandum from some other institutions/organizations are as follows : (i) The limit may be retained to 30% according to the increased cost of construction/renewal/repair.2 Suggestions: Institute of Chartered Accountants of India in their written memorandum submitted to the Committee suggested as follows : The words taxes levied by local government be replaced by ―taxes levied by local authority or GOVERNMENT in section 27(1)(a). as ev en at present 30% is found inadequate in large number of cases.
6. and (b)has received any amount.1 Existing provision in the Income Tax Act. the Code also proposes to provide for all necessary deductions against house property income and accordingly. whether the person is the owner of the property in that year or not. by way of arrears of rent from such property. whether the assessee is the owner of that property in that year or not.29 While replying to the above said suggestions. no further deductions are warranted. 6. as in the IT Act.Where the assessee—(a) is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant. Clause 29 reads as under : 29. shall be deemed to be the income chargeable under the head Income from house property and accordingly charged to income-tax as the income of that previous year in which such rent is received. 1961: Under Section 25B. whether or not the person continues to be owner of the property in that year.4. (2) The arrears of rent referred to in sub-section (1) shall be included in the total income of the person under the head income from house property. after deducting [a sum equal to thirty per cent of such amount]. the municipal taxes and interest payable on borrowed capital is also allowable as deduction. (3) A sum equal to twenty per cent of the arrears of rent referred to in sub-section (1) shall be allowed as deduction towards repair and maintenance of the property. the Ministry in their written comments stated as under. Since this deduction is in the form of a standard deduction for repairs and maintenance etc. not charged to income-tax for any previous year. Therefore. the amount so received. 20% is a reasonable percentage. . The said clause also provides that the amount of rent referred to above shall be included in the gross rent under clause 26 for that financial year. (1) The amount of rent received in arrears shall be deemed to be the income from house property of the financial year in which such rent is received. Further.4 Clause 29 – Provision for arrears of rent received Clause 29 provides that income in respect of the rent received in arrears in a financial year shall be computed under the head "Income from house property".
furniture or any other facility or services whether inbuilt or provided separately. or (b) any building along with any machinery.2 Suggestions: ICWAI in their written memorandum on the above said clause suggested that a sum equal to thirty percent of the arrears of rent referred to in sub-section (1) shall be allowed as deduction towards repair and maintenance of the property. As is seen from submissions made to the Committee and the admission of the Ministry. 6. The Committee also express the view that the quantum of deduction permissible towards repair and maintenance of house property both of the rent received as well as arrears of rent covered under Clause 29 is raised to a more reasonable percentage. along with facilities and services whether inbuilt or provided separately. 6. as agreed to. plant. The Committee expect that this infirmity is addressed.1 Suggestions: Suggestions on this clause received from different organisations are given as under : (i) Section 314(116) may be reworded as follows:(a) any building or land appurtenant thereto along with OR WITHOUT facilities and services whether in-built or provided separately. which is the case under the prevailing Income Tax Act. The Ministry in their written replies to the above said suggestion stated that the deduction is like a standard deduction for repair and maintenance etc and for this purpose a rate of 20% is quite reasonable. or .5 Clause 314 (116) of the DTC Bill.30 6.5. 2010: Clause 314 (116) of the DTC Bill. The Committee expect appropriate action to be taken to this end while recasting the formulations. which stipulates the items on account of which deduction can be claimed in computing income from house property does not cover unrealized rent. the formulation under Clause 27.4. 2010 also describes house property which reads as under „house property‟ means— (a) any building or land appurtenant thereto.
furniture or any other facility or services whether inbuilt or provided separately. (CII) The Ministry while accepting the above said suggestions have stated in their written comments that the suggestions will be considered for appropriate modifications in the definition.31 (b) any building along with OR WITHOUT any machinery. plant. unambiguous and without leaving scope for varied interpretation. (ICAI) (ii) It should be clarified that the letting of a factory along with all its business assets which are inseparable should be taxed as business income. . the Committee expect that the formulation is revised so that the definition is clear-cut. As is the case with the other provisions pertaining to taxation of house property. As assured. the Committee note that the definition or description of house property under clause 314 (116) too has been worded rather loosely and ambiguously.
As in the case of unrealized rent. the assessee need not be the owner of the property in the year of receipt. in the cases where unrealized rent is subsequently realized. CONCISE INCOME TAX.334. each of them will also get the concessional treatment in respect of one self-occupied property.37 7. then such persons are known as co-owners. In other words.VII SOME SPECIAL PROVISIONS 7. Supra n 34 at p. it is not necessary that the assessee continues to be the owner of the property in the year of receipt also.1 Taxability of Unrealized Rent recovered later (Section 25A): Where any rent cannot be realized.39 37 38 Dr. 2nd ed. 30% of the receipt shall be allowed as deduction towards repairs. collection charges etc.1997.32 CHAPTER. it has been provided that each of the owners will be assessed individually in respect of share of income from the property. income from the property will be determined and allocated to each co-owner according to his share. However.38 7. such an amount will be deemed to be the income from house property of that year in which it is received. Badal Mukherjee.2 Assessment of arrears of rent received (Section 25B) When the owner of a property receives arrears of rent from such a property. No other deduction will be allowed. Co-owners are not taxable as an association of persons. and subsequently if such amount is realized.335.3 House property owned by co-owners (section 26) If a house property is owned by two or more persons. . We have seen earlier that the basic requirement for assessment of this income is the ownership of the property. 39 Supra n 37 at p.243. p. When each of the co-owners of a property uses it for his residence. When the share of each co-owner is definite and ascertainable. the same shall be deemed to be the income from house property in the year of receipt.
the annual value is taken at nil and no other deductions are allowed except for interest on borrowed capital upto a maximum of Rs.30. p. .33 7.000 or Rs. the balance will be carried forward to the next assessment year to be set off against the income from house property of that year. there are no restrictions on deductions and therefore.40 40 A. 2011. there may be a loss upto a maximum of Rs.30. LAW OF INCOME TAX. if any. and in respect of a property away from the workplace. In such cases.000. in respect of a let out house property. In case the loss does not get wiped out completely. 50. So far as income from a self-occupied property is concerned. 2. such carry forward is restricted to eight assessment years only. However.C. can be set off against incomes under any other head like salary. vol. there will be a loss from that property.4 Loss from house property If the aggregate amount of permissible deductions exceeds the annual value of the house property. The loss from one house property can be set off against the income from another house property. However. 11th ed.1. The remaining loss.1. there can be loss of any amount under this head.2786.000. Sampath Ayengar. 000 or Rs. as the case may be.50.
is taxable under the head „Income from house property‟. will depend upon the nature of the agreement and the character of the receipt in the hands of the assessee. 000 as the case may be. One house property in self occupation or a property which the owner is unable to occupy because of his business. the income therefrom will not be assessable. whether as business or other sources. the law as per now with respect to House property income for tax is sufficiently alright but same needs a change with a change in time and conditions. employment or occupation being located elsewhere will be assessed at nil value. it is liable for capital gains tax. the fair rental value and the standard rent under the Rent Control Act are taken into account. actual rent will be adopted from assessment year 1987-88. Property income is assessable on notional basis. Where the property is sold.34 CHAPTER-VIII CONCLUSION Under section 22 of the Income Tax Act. So. 50. in the hands of the owner (or deemed owner) of the property. the annual value of house property. . but where actual rental receipt is more than such notional income. The computation of property income is subject to change from time to time. provided that the property is not used by the assessee for the purpose of his own business or profession. the actual rent received or receivable from the property. For determining the annual value of the house property. Where the income is composite one. No deductions are permissible from the annual value of such property. the prospect of assessment of the entire income as property income or as from business or other sources or such income being split up as between property income and other income. Where the property is used for business.30. the municipal valuation. subject to the maximum limit of Rs. except the interest on borrowed capital. Section 24 of the Income Tax Act provides that 30% of the NAV and the interest on borrowed capital shall be deducted from the NAV to obtain the taxable income from house property. As per Section 23(2) of the Income Tax Act. the annual value of one self-occupied house property is taken to be nil. the Municipal Taxes are deducted to arrive at the Net Annual Value.1. From the Gross Annual Value of the property. consisting of buildings and lands appurtenant thereto.000 or Rs.
35 8. Further. (b) This relief would be subject to the conditions that inter-alia include: (i) The amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139. In the case of transfer of a capital asset where the consideration is not ascertainable or cannot be determined Fair Market Value has to be considered as full market value (Section 50D). capital gains would be subject to taxation in case any of the conditions are violated. (ii) The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares. for subscription in equity shares in the SME company in which he holds more than 50% share capital or more than 50% voting rights. Suggestions are: (a) It is proposed to insert a new section 54GB so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery. . Capital gain arising on sale of house property is exempt if invested in shares of a company incorporated during the previous year and the company invests in new plant and is engaged in the business of manufacturing.1 DIRECT TAX REFORMS UNDER THE BUDGET: Under the Union Budget 201241 relief is given from long-term capital gains tax on transfer of residential property (house property or land)if invested in a manufacturing small or medium enterprise. 41 THE UNION BUDGET 2012-2013. and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. (c) Suitable safeguards so as to restrict the transfer of the shares of the company.
42 The Direct Tax Code Bill. or steps have been taken to compel him to vacate the property. Pranab Mukherjee tabled the Union Budget 2012 in the Parliament on March 16. While leaving the direct tax rates largely unchanged. (c) the defaulting tenant is not in occupation of any other property of the assessee. The Finance Minister (FM).36 8. (b) the defaulting tenant has vacated. taxation of offshore transfers and introduction of advance pricing agreements. (d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. Key highlights are introduction of General Anti Avoidance Rules (GAAR).2 DIRECT TAX CODE: As per budget presented on 16th March. While the implementation of the Direct Taxes Code (DTC) has been deferred. under Rule 4 of the Income tax Rules which deals with explanation to Section 23.— (a) the tenancy is bona fide. Implementation of Direct tax code has again been deferred and won‟t be applicable from 1st April. 2. Mr. 2012. 2012. sub-section (1) the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where. 8. No deduction for Housing loan repayment of Self-Occupying property. 2012. With respect to House property the following has been proposed by the new DTC42House Property: 1. . the FM has proposed changes to align the current tax code with the DTC. Only Let out properties are considered and the Gross rent and specified deductions are taken with simple calculations. This includes interest as well as part of principal.3 INCOME TAX RULES: With respect to Income Tax rules for House Property Income it only talks about the concept of „unrealised rent‟. 2012. the Finance Minister committed that the Government will take steps for enactment of the DTC at the earliest.
Direct tax reforms are the best possible way for bringing in the changes and amendments as the concept of house property income is different and there is a need for proper look out as property is something.37 These are the major changes and as per the existing law and the suggested law. There is a need for changes in the law with respect to the prevailing conditions and changing scenario. 1961 is well settled. the overall aspect of computation of tax for income from house property under the Income Tax Act. that its value and limitations are extending with time. that is why we require a changing and encompassing law. .