You are on page 1of 25

|   

   
Roll No.: 15
Subject: Taxation
th
Class: Exe. MBA (2008-11) 4 Sem.

Assignment No.: 1
Date of Submission: 17/03/2010

College: SIMS, PUNE.


Income From House Property
Chargeability (U/S Sec.22)
1. Annual value of the house property constitutes
the bases of the charge.
2. The property consists of any building or land
adjacent thereto.
3. The assessee shall be the owner of such
property.
4. The property shall not be used for the purposes
of assessees own business or profession
Different situations under which
income arises
1. Let Out Property (LOP)
2. Self-occupied property(SOP)
ʹ Annual value of one self occupied property is
completely exempt from tax (Sec. 23(2))
3. Deemed to be letout property.
ʹ If the assessee has occupied more than one house
property for his residential purpose, only one house
property according to assessee͛s choice shall be
treated as SOP
4. Partly Self occupied and partly let out
Computation of income from LOP
Computation of income from let out property
Particulars Rs. Rs.
GROSS ANNUAL VALUE (GAV) xxx
Less: Municipal taxes paid by the assessee xxx
NET ANNUAL VALUE (NAV) xxx
Less: Deductions U/S 24:
a) Standard deduction @ 30% of NAV xxx
b) Interest on Borrowed capital xxx xxx
INCOME FROM LET OUT PROPERTY xxx
Computation of Gross Annual Value (GAV)
Particulars Rs. Rs.
Municipal Rental Value (MRV) xxx
fair Rental Value (FRV) xxx
MRV or FRV which ever is higher (WIH) xxx
Standard Rent (SR) xxx
EXPECTED RENT (Which ever is lower) WIL xxx
(Annual Rent - Unrealised rent) xxx
ANNUAL RENTAL VALUE (ARV) (Which ever is Higher) WIH xxx
Less: Vacancy period loss (Vacancy period *actual rent for the
vacancy period) xxx
GROSS ANNUAL VALUE (GAV) xxx
DEDUCTION u/s 24
a. Standard Deduction [U/S 24(a)]
30% of net Annual Value (NAV) shall be allowed as standard
deduction irrespective of expenditures incurred by the assessee. No deduction shall be
separately allowed for repairs, ground rent, insurance or any other expenses incurred by
the assee since the above slab of 30% includes for the same.

b. Interest Borrowed Capital [u/s 24(b)]

ã 
     
 
   
   ã 
  
  
Interest on borrowed capital for the period Interest calculated on pre-construction
1.4.09 to 1.4.2010 is fully allowed period is allowed in 5 equal annual
installments starting from the previous
year in which house was acquired or
construction was complete
Computation of income from SOP

Computation of income from Self occupied property


Particulars Rs. Rs.
GROSS ANNUAL VALUE (GAV) NIL
Less: Municipal taxes paid by the assessee NIL
NET ANNUAL VALUE (NAV) NIL
Less: Deductions U/S 24:
a) Standard deduction @ 30% of NAV NIL
b) Interest on Borrowed capital xxx xxx
INCOME FROM SELF OCCUPIED PROPERTY xxx
Computation of income from SOP
‡      
   !        
"
" #     
 $       $%
&$
'
( 
 )     
 

 "
1. Capital borrowed on or after 1.4.1999
2. Purpose of loan shall be for acquisition or construction.
3. The acquisition or construction shall be completed withing 3 years from the end
of the previous year in which capital was borrowed.
4. Certificate of interest payable from lenders of the loan shall be furnished.
5. If any one of the conditions mentioned are not satisfied then the ceiling is
reduced to a max of Rs 30,000

$"      


 $       $%
&$
' * 
1. Capital is borrowed before 1.4.1999 or
2. Purpose of loan shall be repair, reconstruction or renewal of house property.
Computation of income from Deemed
to be let out Property(DLOP)
‡ If an assessee occupies more than one self occupied property, then according to
the assessee͛s choice only one house shall be treated as self occupied (SOP) and all
other shall be deemed as let out properties (LOP) and its income shall be
computed as if it were to be a letout property.

| The option of selecting one house as self occupied property shall be in such a
way that the net income of assessee is as minimum as possible(it shall not be
based on GAV or NAV)
˜        

         
    + 
  
Where a house is self occupied for a part of the year and let out for the
remaining part of the year, the benefit of SOP shall not be available for such
property and the whole property shall be treated as completely let out through
out the year. However while calculating actual rent for such property, it shall be
considered for the let out period alone whereas all other details like Municipal
value, FRV and SR are considered p.a.

Note: O   
     
         
   
$        
  
Where a house property consists of two or more independent residential units
of which one of them is self occupied for own residence ) )   ) 
and remaining units are let out, the SOP portion or unit shall be treated as SOP
and the remaining portions shall be proportionately treated as LOP
Example considering all the different
situations
Example
Sri Kishore is the owner of 3 houses. Following are the particulars for the year ending
31.3.2008
   
, 
 , 
 *, 

Year of construction 1996 2000 2002
Self Let out to
Purpose of use Letout occupied residence
Actual rent received(p.a) 30000 24000
Municipal valuation 32000 28000 30000
Municipal tax paid by Kishore 1200 1000 3000
Municipal tax paid by tenant 2000 1800
Total municipal tax 3200 2800 3000
Fire insurance premium (%) 2 20 2
Interest on loan taken for renual of the house 7000 5000
˜   # $    )) 
     -
)    )./0
House 1
, 
1!
   
'
" '
"
Municipal Rental Value (MRV) 32000
fair Rental Value (FRV) x
MRV or FRV which ever is higher (WIH) 32000
Standard Rent (SR) x
EXPECTED RENT (Which ever is lower) WIL 32000
Actual Rent 30000
GROSS ANNUAL VALUE (GAV) 32000
Less: Municipal taxes paid by the assessee during the
previous year 1200
NET ANNUAL VALUE (NAV) 30800
Less: Deductions U/S 24:
a) Standard deduction @ 30% of NAV( 30800 * 30%) 9240
b) Interest on Borrowed capital x 9240
ã|˜! 2'! , 
 (3
House 2

, 
 !

   
'
" '
"

GROSS ANNUAL VALUE (GAV) NIL

Less: Municipal taxes NIL

NET ANNUAL VALUE (NAV) NIL

Less: Deductions U/S 24:

a) Standard deduction @ 30% of NAV NIL

b) Interest on Borrowed capital(ceiling limit of RS. 30000) 7000 -7000

ã|˜! 2'! , 
 4
House 3
, 
*1!
   
'
" '
"
Municipal Rental Value (MRV) 30000
fair Rental Value (FRV) x
MRV or FRV which ever is higher (WIH) 30000
Standard Rent (SR) x
EXPECTED RENT (Which ever is lower) WIL 30000
Actual Rent 24000
GROSS ANNUAL VALUE (GAV) WIH 30000
Less: Municipal taxes paid by the assessee during the
previous year 3000
NET ANNUAL VALUE (NAV) 27000
Less: Deductions U/S 24:
a) Standard deduction @ 30% of NAV( 37000 * 30%) 8100
b) Interest on Borrowed capital ( no ceiling since it is an LOP) 5000 13100
ã|˜! 2'! , 
* *
Net Income from all 3 houses

˜   | ã  '


"

House 1 21560

House 2 -7000

House 3 13900

| ã  0&3
Income From Capital Gain
‡ Types of Capital Assets
± ,!'552'
‡ If the asset is held for Less than 36 Months then they
are Short Term capital assets.
‡ In case of Equity/Preference Shares in a Company,
Securities such as Debentures/Government Securities
and Units of UTI and Units of Mutual funds and Zero
Coupon bonds the term is 12 instead of 36 months.
± LONG TERM
‡ If the asset is held for More than 36 Months then they
are Long Term Capital Assets.
TAX LIABILITY
‡ ,!'552' ˜.ã5.16.ã|
ʹ To determine the Value of Consideration
ʹ To deduct expenditure incurred for the transfer
ʹ To deduct the cost of acquisition.
ʹ To deduct cost of improvement.
ʹ The balance amount is Short Term Capital Gains.
ʹ Short Term Capital Gains are chargeable to Tax based on SLAB RATES.

‡ 1!|652' ˜.ã5.16.ã|
ʹ To determine the Value of Consideration
ʹ To deduct expenditure incurred for the transfer
ʹ To deduct indexed cost of acquisition
ʹ To deduct indexed cost of improvement.
ʹ To avail exemption u/s 54, 54 B,54 D, 54 EC, 54F, 54 G, 54 GA,
ʹ The balance amount is Long Term Capital Gains.
ʹ Long Term Capital Gains are chargeable to Tax on Flat Rate i.e 20%
INDEXATION BENEFIT

‡ Indexation is nothing but working out the value of asset based on cost
inflation index.
‡ Cost inflation index for the year 1981-82 is 100 Cost inflation index for the
year 2007-08 is 551.
‡ If an assesse had purchased an asset during the year 81-82 for a sum of
Rs.100.00. The same asset͛s value will be 551 if purchased during the year
2007-08 based on cost inflation index.
‡ Therefore the assesse gets additional benefit by deducting 551 instead of
100.
gains theory
Computation from short term capital gains theory
‡ 
± Find out the full value of consideration
‡ 
± Expenditure incurred wholly and exclusively in connection with such a transfer
± Cost of acquisition
± Cost of improvement
‡ *
± From the resulting sum deduct the exemption provided by sections 54B, 54D, 54G and
54H
‡ &
± The balance amount is short-term capital gain

The expression  means the whole price without any deduction
whatsoever and it cannot refer to the adequacy or inadequacy of the price
bargained for, nor has it any reference to the market value of the capital asset,
which is subject matter of the transfer. The consideration for the transfer of the
capital asset is what the transferor receives in lieu of the asset he parts with,
namely money or money's worth.
‡ short-term capital
Example computation for short term capital gain
‡ Ajay (HUF) is a Hindu undivided family. The family acquires a residential house at Delhi for Rs.
5,10,000 on April 1, 2001. The family undergoes complete partition on Nov 1, 2001 and the
residential house is allotted to Rahul, a member of the family (fair market value on Nov 1,
2001 is Rs. 6,00,000). Rahul sells the house on March 15, 2004 for Rs. 6,90,000. Determine
the amount of chargeable capital gains in the case of Ajay (HUF) and Rahul.

˜    #
Ajay (HUF) - Ajay (HUF) has transferred a house property to Rahul at the time of partition. Since
the transaction is not treated as transfer under section 47(i), surplus arising thereon is not
taxable.

Rahul ʹ Since Rahul has transferred a house property, he is chargeable to tax as follows:


 
  '
"377

Less: Cost of acquisition (since capital Rs. 5,10,000


asset is acquired in one of
circumstances mentioned in section 49
(1), cost to the previous owner is taken
as cost of acquisition)

Short-term capital gain Rs. 1,80,000


gains theory
Computation from Long term capital gains theory
‡ 
± Find out the full value of consideration

‡ 
± Expenditure incurred wholly and exclusively in connection with such a transfer
± Indexed Cost of acquisition
± Indexed Cost of improvement
‡ *
± From the resulting sum deduct the exemption provided by sections 54, 54B, 54D, 54EA, 54EB, 54F
and 54G

‡ &
± The balance amount is Long-term capital gain

In case long term capital gains is covered by section 115AB, 115AC or 115AD, it is taxable at the rate
of 10%.
Deductions under section 80CCC to 80U and rebate under section 88 is not available in respect of
long term capital gains

‡ short-term capital
Example computation for long term capital gain
Ajay purchases a house property for Rs. 76,000 on June 30, 1967. The following expenses
are incurred by him for making/addition alteration to the house property:

˜
  
   
  4(43 77
˜
  
   )
   00* &7&7
.  % 
   )   0 77

Fair market value of the property on April 1, 1981 is Rs. 6,50,000. The house property is sold by
Ajay on June 15, 2003 for Rs. 58,00,0000 (expenses incurred on transfer: Rs.50,000).

'
" '
"

˜ 
  (077
1


2#

   
 (7
ã#
  8
|  *77(

ã#
     37&73*
| 
1      703
Cont͙
Notes:
1. Indexed cost of acquisition is computed as follows:
Rs.6,50,000 / 100** X 463*** = Rs. 30,09,500
*Fair market value on April 1, 1981 (actual cost of acquisition is ignored as it is lower than fair market value on
April 1, 1981).
**Cost inflation index for 1981-82
**Cost inflation index for 2003-04, i.e. the year in which asset is transferred.
2. Indexed cost of improvement is determined as under:

˜ 
   
  4(43#

 |ã1
  . 70   


˜ 
  
   07307
 ""'
"&7&79:&3*99%999

.  % 
  0 47073&
 ""'
"779:&3*99%4999
37&73*

Indexed cost of improvement


*Cost of improvement
**Cost inflation index for 2003-04
***Cost inflation index for 1982-83
****Cost inflation index for 1989-90
Thank You