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    ICAI MATERIAL

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    ICAI MATERIAL

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    8 views10 pages

    House Prop PDF

    Uploaded by

    contactraj08
    ICAI MATERIAL

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 10
    INCOME FROM HOUSE PROPERTY =) LEARNING OUTCOMES After studying this chapter, you would be able to - a examine the circumstances for ascertaining whether income derived from a property would be chargeable to tax under the head “Income from house property” or “Profits and gains from business or profession”, compute the income chargeable to tax under the head “Income from house property” in respect of self-occupied property/properties, let-out property, partly let-out and partly self-occupied property, property let out for part of the year and self-occupied for part of the year, deemed to be let-out property after allowing permissible deductions under section 24; identify the cases where @ person, though not the legal owner, would be deemed as owner of house property; examine the tax treatment of income from co-owned property; examine the tax treatment for arrears of rent and unrealized rent received subsequently ‘© The Institute of Chartered Accountants of India G 54 CHARGEABILLITY [SECTION 22] (1) The process of computation of income under the head “Income from house property" starts with the determination of annual value ofthe property. The concept of annual value and the ‘method of determination is laid down in section 23. (2) The annual value of any property comprising of buildings or lands appurtenant thereto of Which the assessee is the owner is chargeable to tax under the head “Income from house property’ Exceptions: Annual value of the following properties are chargeable under the head “Profits and gains of business or profession” - (i) Portions of property occupied by the assessee for the purpose of any business or profession ‘ctried on by him, (il) Properties of an assessee engaged in the business of letting out of properties. G 5.2 CONDITIONS FOR CHARGEABILITY (1) Property should consist of any building or land appurtenant thereto. (i) Buildings include not only residential buildings, but also factory buildings, offices, shops, godowns and other commercial premises. (i) Land appurtenant means land connected with the building ike garden, garage etc. ‘It may be noted that Income from letting out of vacant land is, however. taxable under the head “Income from other sources” or “Profits and gains from business or profession’, as the case may be. (2) Assessee must be the owner of the property (i) Owner is the person who is entitled to receive income from the property in his own Fight. (ii) The requirement of registration of the sale deed is not warranted. (ii) Ownership includes both free-hold and lease-hold rights. (iv) Ownership includes deemed ownership (discussed later in para 5.11) (v) The person who owns the building need not also be the owner ofthe land upon which itstands. (vi) The assessee must be the owner of the house property during the previous year. Itis not material whether he is the owner in the assessment year. © The Institute of Chartered Accountants of India, INCOME FROM HOUSE PROPERTY CG (vi) Ifthe title of the ownership of the property is under dispute in @ court of aw, the decision as to who will be the owner chargeable to income-tax under section 22 will be of the Income-tax Department til the court gives its decision to the suit fled in respect of such property. ‘However, in case of recovery of unrealized rent and arrears of rent, ownership of that property. is not relevant. (discussed later in para 5.9) (3) Use of property The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession cartied on by him, the profit of which is chargeable to tax. The income eared by an assessee engaged in the business of letting out of properties on rent would also be taxable as business income and not as income from house property [Rayala Corporation (P) Ltd. v. Asstt. CIT (SC) (2016) 386 ITR 500] (4) Property held as stock-in-trade etc. Annual value of house property willbe cherged under the head “Income ftom house property’, where itis held by the assessee as stock-in-trade of a business also. However, the annual value of property being held as stock in trade would be treated as NIL for a period of [two] years from the end of the financial year in which certificate of completion ‘of construction of the property is obtained from the competent authority, if such property is not let-out during such period [Section 29(5), G 53 COMPOSITE RENT (1) Meaning of composite rent: The owner ofa property may sometimes receive rent in respect of building as well as — (i) other assets like say, furniture, plant and machinery. {or different services provided in the building, for e.g. ~ (2) Lifts; ib) Security; () Power backup: ‘The amount so received is known as “composite rent”. © The Institute of Chartered Accountants of India, (2) Tax treatment of composite rent Where composite rent includes rent of building and charges for different services (its, security etc), the composite rent is has to be spit up in the following manner - (l)__ the sum attributable to use of property is to be assessed under section 22 as income from house property; the sum attributable to use of services is to be charged to tax under the head ‘Profits ‘and gains of business or profession” or under the head “Income from other sources’, as the case may be. (3) Manner of splitting up I let out building and other assets are inseparable ‘Where composite rent is received from leting out of building and other assets like furniture) ‘and the two lettings are not separable ie. the other party does not accept letting out of buildings without other assets, then the rent is taxable either as business income or income from other sources, the case may be. This is applicable even if sum receivable forthe two lettings is fixed separately. I let out building and other assets are separable Where composite rent is received from leling oul of buildings and oller assets and the (wo lettings are separable ie. letting out of oneis acceptable to the other party without letting out of the other, then (@) income from letting out of building is taxable under “income from house property’; (0) Income from letting out of other assets is taxable under the head “Profits and gains {rom business or profession” or “Income from other sources”, as the case may be. This is applicable even if a composite rent is received by the assessee from his tenant for the two lettings. (G 54 INCOME FROM HOUSE PROPERTY SITUATED OUTSIDE INDIA (1) Incase of a resident in india (resident and ordinarily resident in case of individuals and HUF), income from property situated outside India is taxable, whether such income is brought into India or not. (2) In case of a non-fesident or resident but not ordinarily resident in India, income from a property situated outside India is taxable only itis received in India, ‘© The Institute of Chartered Accountants of India INCOME FROM House PROPERTY CG G 5.5 DETERMINATION OF ANNUAL VALUE [SECTION 23] Determination of Gross Annual Value (GAY) (1) Determination of annual value for different types of house properties (i) Where the property is let out throughout the previous year [Section 23(1)(a)/(b)] ‘Where the property islet out for the whole year, then the GAV would be the higher of ~ (2) Expected Rent (ER) and (b) Actual rent received or receivable during the year ‘¢ The Expected Rent (ER) isthe higher of fair rent (FR) and municipal value (MV), but restricted to standard rent (SR). For example, let us say the higher of FR and MV is X. Then ER = SR, if X>SR. However, if X

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