aOR Wid duisanT 4 otonee Tatraduetiat Conditions for Assessment’) 9°) Annual Value of the House Allowable Expenditures Non-allowable Expenses i , House Property’ Exempted from’ Tax’ 5 Receive, House Rent through “Bank “Account! Property ; Illustrations 11-11 : Aids to perception - - Questions Exercise = ~ eS cal situations deserve attention: Where the property is held under Trust: Tax may be paid either by the Trustee or by the beneficiary. toy 38 ai “Where the ‘property: is mortgaged: Tax will, be.paid by the mortgagor. “Where the property is leased:‘If the lease is for, lo pay tax. Where. the lease:is for short, time, the lessor Il be assessed, but not ‘urider this héad’rather under the head ‘other income’)! jays 0) In case: ‘of insolvency: insolvent, the official receiver will'be liable for tax. to! Hluas Wiig of of inter clot beloulab-sd itv. 1 Scanned with CamScanner time, the lessee is to,Income from House Property-235 11.2: Conditions for Assessment To be assessable, a house property needs to fulfill the i) Assessce must be legal owner of beneficiary of the house. , ii) Income must come from the house property-and its adjacent premises. Vacant land having no house will not be taxed. iii) For assessment, ‘Annual Value’ is to be determined. iy) Loss arising from rented house may be set-off against income from other heads of income. following conditions : 11.3: Annual Value of the House Section 24 of the Income Tax Ordinance, 1984 provides that tax on house property will be charged on the basis o} ».@anual value may be defined as the sum for. which the property consisting of building, furniture & fixture, land and apartments thereof that might reasonably be expected to let out from year to year. In this ‘case prevailing circumstances such as locality, demand for house etc., need to be considered. However, under section 2(3) of the I. T. Ordinance, the term Annual Value in relation to house property means the following: In respect of let out property: i) _ The sum of Municipal estimated annual rent (MV) ii) The sum of actual annual rent (RV) The higher one. That is AV = Municipal Value (M. V.) (Which is assumed based on estimated annual rent) or Actual Rental Value (R. V.) Whichever is higher (Municipal Value represent value estimated by Municipality or City corporation) It may be noted that previously till 1992 house occupied by owner for his residential purpose would also come under taxation. Now, Owner's occupied residential house is exempted from tax and thus its annual value needs not be computed. In connection with house rent for, let out property, it is to be noted that the expenses that are generally need to be borne by the owner such as municipal tax/local tax, repair if paid by the tenant will be added with rent to determine actual rent. Conversely, expenditure such as water tax is generally need to be paid by the tenant. If water tax is paid by the owner it will be deducted from rent to determine actual rent, Scanned with CamScanner11.4: Allowable Expenditures (Se: Income trom House Property-236 . 25) ; Following expenditures will be allowed as deductions U/S 25 tw determine the value of house property subjcet to tay: luc of the house i) Repairs and Collection: A fixed amount of H/ of the annual vi Will be allowed as repair charg pective of whether any rep undertaken or not, This will inelude collection charge, electricity, sewerage salary of guard, liftman, caretaker and such incidental charge. But for commerce houses this rate has been increased to 30% by FA 2004, Ue an assessce claims that this statutory expenses have not been used Fully and difference is shown as an asset in Wealth statement then under Finance Act 2015. ed as income from “Other source.” r has been bill, ial ¢ irre: this difference be tre: In this connection it can be mentioned that houses can be of 3 types: House used for commercial purpose, House used for residential purpose & rented ssident of assessce ic owner occupied residential to tenant and House used for r house. one residential house used for residence of assessce is not assessable, SO exemption for repair or other items will not be relevant to this house as income from itis not taxable, Land Revenue: Any sum paid (not merely payable) by the assessce as land revenue is allowable xpenditure. Insurance premium: Insurance premium for the house against risk of damage or distraction teated as allowable expenditure. on loan received by giving mortgage of the property Mortgage interest: Interes for development and renovation of the house will be an allowable expense. Under Finance Act, 2002, the interest on Joan taken at times of construction of house will also be allowed as deduction but it will be divided into first three years when the” property comes under taxation. Municipal/Local Authority Tax: Tax payable to Municipality or any- other Local Authority is called annual charge and it is allowed as deduction for tx Ground Rent: The owner of the building assessable for tax may be the lessee of the land on which it is erected. If he has to pay any ground rent in respect of land, it an allowable expense. * capital: Wheie the property has been acquired, , the amount is called ground rent and it Interest on Borrowed constructed, repaired, renewed or reconstructed with borrowed cap’ of any interest payable on such borrowed capital shall be deductible from house shail be allowed U/S 25(2) of ITO, if such interest property income.-No deduction is paid outside Bangladesh. Further, according FA, 2014, such deduction of interest will be allowed for Joan taken from Bank or Bangladesh House Building Finance Corporation Scanned with CamScannerIncome from House Property-237 . vonli r from the tenant is- allowable on viii) Un-realised Rent; Loss on un-realised rent from e fulfilment of the following conditions 5 (i) That the house was legally let out. sc sh proper action. (ii) That the tenant has vacated the house through proper act : : me owner was in possession of the same: - (ii) That no other house of the sai tenant during period of rent defaulted. (iv) That proper legal action was taken to tealise the outstanding rent. dix) Vaeaney Allowance p aia 1 It means the house property not hired by a tenant, Part of such rent becomes a loss, So it is allowed as deduction from property income of the owner in proportion to annual value tor y; ant period. Non-allowable Expenses Following expenses will not be allowed: i) Salary of Gardener (Mali) ii) Cost of appeal against assessment of house property income. iii) “Expenses for the house not: taxed under the head 'Income from. House Property’, 11.6: House Property Exempted from Tax a The following house properties are exempted from income tax: (1) Property income of approved religious or charitable institutions in Bangladesh and voluntary contribution to such institutions. (2) Income from house constructed and used by Refuges. (3) Income of any residential building occupied by owner. (4) House property used in the business of the owner, if the income of the business is assessable separately under the head "Income from Business or Profession." (5) Income of the property used for Agricultural purpose by the owner. (6) "Income from newly constructed house as follows for a period as set by NBR: Any income derived from any building, not less than five storied, having atleast 10 flats, constructed at any time between Ist july 2008 and 31st June, 2013 shall he exempted for ten years from the date of construction, The condition is as follows: Building shall be situated in any area of Bangladesh other than ares is of City, Corporation, Cantonment Board, Powrashava of district headquarters & Dhaka district. Scanned with CamScannert 7 - . . - i Income from House Property-238 , 41.7, Receiving House Rent through Bank Account: New Provisions of finance Act, 2014 (Rule 8A of J.T.O.. 1984 - Finance Act 2014 has introduced changes in keeping accounts by assessce with __geference to Sec. 35 of the LT Ordinance, 1984. In such a change a new section 8A has “been inserted in rules concerning Sec, 35. This rule 8A is applicablé for receipt of house rent. This rule provides the following as to'receipt of house rent through bank account: i)... Any-owner or beneficiary as occupier, receiving’ house rent including fittings and furniture therin, from residential or commercial use of house, from one or more than one renter in excess of Tk. 25,000 per month will open a bank account in a schedule bank for depositing such rent In such account, house-rent and other income can be kept. : Assesser for such rent'received which totally exceed Tk. 25,000 shall maintain a register of receipt of house rent-be it one on more than one renter. Such register will contain name and address of assessee, amount received as rent, med necessitty. date of receipt and other information of assessee as ch v), The assessee shall inform DCT of the areas as to stich house rent receipts and at the time of submitting tax return will submit bank statement relevant to house rent receipt as per his bank account ~ vi) Incase of joint owner of house property if the share of house rent of a co-shareholder 00 he will open bank account for house rent receipt. |. exceed Tk. vii) The renter should pay house rent through cross check and if renter pay house rent in cash-the owner shall deposit it to his bank acount which deals with his house rent 1 receipts. : viii) An assessee, on his own for simplicity and case, can maintain a separate bank exclusively for house rent receipt. ix) [fan owner of a house property does not reside in the country, the person to whom power of attroney has been given for maintaing these and receipt of rent, this person will operate bank account relevant to house ernt and he will be responsible for this. Determining Rent of the House: No change has been made in determing house rent as regards sec. 2(3) and sec. 24 in finance Act 2014. So earlier provision as Rental Value and Municipal Value-Whichever is “higher remains valid. In such a context if.D.C.T finds that assessee has deposited lesser - Amount or no deposit has been made in bank account for house rent received, he will _ determine taxable amount as per provisions of Sec. 24 and impose.penalty for not following provisions of 1.T. Ordinance. The penalty will be 50% of tax payable on I of house property or Tk. 5,000- whichever is higher. vengome Scanned with CamScanner¢ from House Property-239 Incom b sidentia iding/Apart 11.8: Special Facilities for investment in Residential Building/A partment Finance Act 2013 under section L9BBBBB has provided th 2 ise of residential building/apartment on payment of anation,of the sources. The rate of such at an assessee can invest undisclosed in come on purchi preseribed tax & tay authority will not ask for expl tax vis-a-vis prescribed ares are show in below: : een Tax rate le i) Gulshan Model Town, Banani, Baridhara, Motijheel C. A & Dilkusha C.A: . a) upto 200 Sq. feet. Tk..5,000 per Sq.feet. b) over 200 sq feet Tk. 7,000 per sq. feet. ii) Dhanmondi R.A, DOHS, Mohakhali, Lalmatia -S.. Uttara Model Town, Bashandhara. R. A, Dhaka Cantonment, Kharwan bazar, Bijoynagar, Shegun Bagicha, Nikunja of Dhaka and panchalaish, Khulshi, Agrabad & Nasirabad of Chittagong: a) upto 200 Sq. feet b) More than 200 Sq, feet iii) Excepting areas as cited in (i) and (ii), other areas of Dhaka & Chittagong City corporation or in other city corporations: a) upto 200 Sq. feet. b) More than 200 Sq. feet iv) Paurashava of any district Head quarter: a) upto 200 Sq. feet b) Over 200 Sq. feet v) Other areas: a) upto 200 Sq. feet b) over 200 Sq. feet In this connection following provisos need to be noted: (2) The rate of tax mentioned in sub-section (1) shall be twenty percent higher in case where the assessee already owns a building or apartment in any City Corporation before such investment is completed; or the assessee makes such investment in two or more Tk. 4,000 per Sq. feet Tk. 5.000 per Sq. feet. cs Tk. 2,000 per Sq. feet Tk. 3.000 per Sq. feet Tk. 600 per Sq. feet Tk. 800 per Sq. feet Tk. 400 per Sq. feet Tk. 600 per Sq. feet buildings or apartments. (3) The provision of this s made by the assessee, for the pur apartment, is — (a) derived from any criminal_activilies under any other law for the time being in ction shall not apply where the source of such investment, se OF construction of such residential building or force; or (b) not derived from any legitimate source. Scanned with CamScannerTaxation-31 Income from: House Property-240 41.9: Speciman Proforma for Computing Income from House Property Name of Assessee : a Income year .., Assessment. year... aa . Computation of Income from House Property Income under the Head House Property Tk. | Tk. ‘Annual Value of Let-out House: ‘Municipal Value or Rental Value Higher one * Less Allowable Deductions: i) Repair (1/4 of AV) ii) Land Revenue paid iii) Insurance Premium iv) Mortgage interest v) Municipal tax, etc. 11.10: Iustrations Illustration-1: Mr. Bashir Iqbal Morshed has a-house at Nasirabad, Chittagong. The house is let out at Tk. 10,000 per month. He spends the following amounts for the house for the year 2016-17: 7 a) White wash of the house Tk. — 5,000 b) Mosaic Tk. 10,000 - co): Rent collection expense Tk. 4,000 4) — City Corporation tax - - Tk: -5,0007 ~~ e) Land revenue paid Tk. 2,000 : : (Tk. 2,000’still due) ) . Salary of guard Tk. 12,000 g) Loan repayment to HBFC Tk. 8,000 (In it Tk. 2,000 is interest) 2) Fire insurance premium . Tk. 2,000 ‘The owner bears the water and gas bill of the tenant which amounted to Tk..6,000 for the year. Compute taxable income of Mr. Morshed for the house. Scanned with CamScannerIncome;-from House Property=244 ord ABE and jlAg Eh Morshed "Hl ane s@ay Solutions :3qa+% awytt ea ‘abat : 1 ome year: sepa h ‘Assessnient ‘year? 2 ‘Computation ‘of income from Hou Tncome under House Property:(Seo..24225) a 7 ~ OLA 1 viral vt: ttn Municipal Value =? Rental Valué = 10,000 x 12 1,20,000 Less cost of Wwater and gas | bill need to be borne by the tenant but paid by the owner Actual'Rental Value= | Annual Value (M.V oc A R V-the higher one) . Less allowable deductions (Sec.'25): i) Repair = ¥g-of-A. V, ii) City Corp.Tax iii) Land Revenue, xiv), Interest on Joan 20. aut House’ Property PK! 6,000 1,14,000 “Income from House property... | Notes: ; 3 i) _ Repair charge includes collection charge, salary of guard etc, White’ “included in repair charge. It is/on thé Wholé; exempted up to'l/j OF A’Ve-": ‘Mosaic-expense is a capital expenditure and thus not,allowed,: i ify i) Land revenue is allowed if payment is made.” 2 Ilustration-2: "7 : 04 j 2 Mr. Ronaldo owns four buildings. From the following particulars compte his income from house property for.the year 2016-2017: BAYS HCE : beng ones 1. First Building: ~"? i It has been let‘out'at.a rhonthly rent of Tk. 9,000. The House is fully furnished having required furniture! & fixture of according to terms of agreement, owner isto bear cost of gas bill and.water;charge which for the year amounted to Tk., 3,600 and TK. 5,000 tespectively. !/srd of the building used by the owner for his.business. The municipal value ane house is. Tk-1,50,000. He spent Tk. 5,000 for repair and paid Municipal tax Tk. MGUNTE Sey ootistedetiy onted Je wed soawo oi? 2. Second Building: It has been let out at Taka 10,000 per month. As per agreement the tenant is to pay half of the municipal tax amounting to Taka 2,000. Municipal value is Tk. 90,000. fidhie inant od Io Hid ens) bins wate lod vet borkeikA Abe OIE Rated agen) poy — Scanned with CamScannerTatts Hones ae aA 4, Third Building: - | | Half of the building is used’ ab! reside for Mr. Ronaldo’ ‘& ‘the building has been let out at Tk. ‘6,000 per month. It has been erected with a Joan taken f HBFC & the annual interest obi dan Tk. 5,000 i is paid. regularly. wh 3 Oe the house is Tk: 4,000 a year. | | j nt ate | 4, Fourth Building: | It is let out at Tk. 5,000:per month. AS per agreement the terfant bdars!the:cost/of. repair which amounted to Tk.'2,000'for the yeat. The house ‘was Vacant fortwo’ Ce i Cost of collection of rent amon to Tk. 1,200. ey eh * Solution: u i i Moos Assessee: Mr. Ronaldo. ise rs! ‘| | Income year: 2016-2017 Assessment ‘year: 2017-2018 Tncome from House Property (Sec. 24-25) Th Tk a] ist* Building” t ‘Annual Value = a) Municipal value 2/3 = ots pre oe EH] oo ‘Vises ok natn safe >) Rental value= ut i : pene Less Gas bill & water bill Actual Rent =,.):. . A. V = Whichever is higher a ho totiatee alfp Less allowable expenses: © .!1 8.) Hun © a) Repair,= vq of A. V, >) Municipal Tax ?/3 = i 2nd House swea{ rite! ast nae Annual Value:, . ‘90,000 ]" b) Rental, Value = Add Municipal tax : Actual rent ‘ 1,22,000| A. V = Higher one of a & b= ‘Legs-allowableiexpenses:, i141) 5 as. ¢frayseig |p a) Repair %4 of A. V = . b) Municipal tax ‘3rd’ Building’ "''" ‘Anniial’Valuel (0 0 ‘a) Municipal Value ='2!140) -b) Rental.Value =11«) « AV = Higher oii betoqary mada fn sat wstnd sol sila bisey en’ dO02 72,000], Scanned with CamScannerIncome from House Property-243 Less allowable expenses: a) Repair = "Wy of AV = 148.009 1 " by Int. on loan "vy 2'000 22,500 ' 49,500 ¢) Ins. premiums 'y = 4th Building Annual value= a) Municipal value = ? . b) Rental value = (5,000 x 12) 60,000 2,000 plus repair Actual Rent = 62,000 Annual value = Higher one =, 62,000 Less allowable expens a) Repair = 1/4 of AV 15,500 b) Vacaney allowance = (920002 10,334 25,834 36,166 Income from House Property 2,46,566 Notes: i) Nard of Ist house is used for business. It will be separately assessed under business head. Allowable cost for the house i.e. municipal cost is computed for 2/3 part of the house proportionately, ii) Repair is allowed @ 1/g of AV, whether spent or not or spent much than that. It includes cost of collection, salary of guard, liftman etc. iii) For second house actual municipal tax is 2,000 x 2 = Tk. 4,000. iv) At present owner's residential house is exempted from tax. As such for third house income has not been computed on it and expenses like interest on loan and insurance premium has been allowed proportianately for 1/3 of the house. ¥) Vacancy allowance is allowed for vacant period proportionately to its annual value. vi) Finance Act, 2009 provides that annual value of house will include building & furniture that is Jet out i.e. value of building & furniture-fixture will be taken together to determine Annual value. Scanned with CamScanner