ICICI Bank is one of the top lenders in India’s private sector. The personal loan offered by the bank comes with interest rates starting from just 10.99% p.a.
Taxation is a key revenue generation stream that is instrumental in the governance of India. Taxes are applied on a variety of commodities, services, sources of income and utilities. The taxes thus imposed aim at the betterment of the same products or services that are offered to the general public.
Any land appurtenant or building owned by an individual comes under ‘house property’. It includes shops, flats, factory sheds, office spaces, farm houses, and agricultural land. It also includes all kinds of house properties such as residential houses, cinema building, godowns, hotel building, workshop building, etc.
The legal owner of the property is liable to pay tax on the income from the house property. Self-occupied and rental property can be treated as sources of income from house property. To be taxed under the head ‘Income from House Property’, the income of the property should satisfy the below-given conditions:
The taxable value of any property that falls under the House Property category is the annual value of the property or any land belonging to it. The tax will be accountable to the owner whom the income from the property is payable to.
Sections 22 to 27 of the Income Tax Act deal with the subject of taxation of Income from House Property. The brief of the sections are as follows –
The annual value of a property is the amount of money that the property can ideally or actually realise in any given financial year.
The annual value of house properties other than those which are used for business or professional purposes is accountable as income from house property and needs to be calculated in order to figure out the tax for the same.
As per the Income Tax Act, the Annual Value of the property is the inherent capacity of the property to earn income and is taxed to the owner. As per the same, the taxable income could be either the Gross Annual Value (GAV), Net Annual Value (NAV) or Annual Value.
In effect, if a person, firm or organisation has the ownership of a house property and has been paying the municipal taxes for the property as well as has the property let out, point 3, or the Annual Value will be amount that is finally taxable.
The annual value of a property is the inherent capacity of the property to yield income. Keeping this statement in mind, the annual value of the property can be one of the following –
The annual value of the property will be the higher of –
The annual value of a property will be taken as ‘nil’ if the property –
Further to the valuation of the property, it is important to remember that municipal taxes borne by the landlord and paid on time are acceptable as exclusions, if an overdue tax is paid within the next financial year, it will be counted as an exclusion along with the paid municipal tax of the same year.
The deductions applicable for Income from House Property can be considered as the following as per Section 24 –
Interest here is categorised as pre-construction and post-construction interest. While the former deals with the interest on loan from the date of borrowing to the day of repayment, the latter deals with the interest that is applicable after the house is completed and is considered the interest for the relevant year. Pre-construction interest can be aggregated and claimed for five successive financial years starting with the year in which the house was completed.
The interest on borrowed capital is calculated on payable basis and can be claimed even if no actual interest has been paid in the particular year and it is also claimable only by the actual person who used the borrowed funds for the purpose of construction.
If in case the interest on borrowed capital is payable to a non-resident of India, and there is no instance of tax paid on the same interest, such an interest will not be acceptable as a deduction. Additionally, interest payable on outstanding interest is also not an acceptable deduction. Brokerages and commissions on the loan or borrowed capital are not allowed as deductions and if the owner decides to take a fresh loan to pay off the earlier loan, the interest on the latest loan will be deductible.
The best possible way of describing how an income from house property is calculated, is through an example scenario.
Mr. Arun (A) and Mr. Bhavesh (B) have been friends since childhood and after getting suitable jobs, they decide to own a house together. They apply for a loan and start the construction of the house. The house is constructed within a year and they become the bona fide co-owners of the property. Having built a fairly large house, they decide to rent out the first floor while sharing the ground floor themselves. The scenario for the annual value of the house becomes thus –
|Gross Annual Value|
|Gross Annual Value will be higher of 5 or 6||3,00,000|
|Less Municipal Tax|
|Less Statutory Deduction|
|Less Interest on Borrowed Capital|
Thus, A and B will have to pay taxes for the annual amount of Rs. 126,000 only and since they are co-owners of the building with the ground and first floors, the tax amount will be divided among them equally. It can be seen that though both the floors are present as property, only the first floor has been taken into account for calculating the annual value of the income from house property. As the owners are occupying the ground floor for their personal use, that is excluded from the income from house property.
If in case, A and B had been staying in non-owned houses at other locations, the annual value of the above mentioned house would have been nil. If they had owned other houses though, they could have chosen any one of them to be excluded from the income from house property category.
Though the computation of income from house property basically covers every possible building or house that can ever exist, there are a few exclusions to the same. The following house properties are excluded from the income computation –
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