Tax is on the annual value of the house property after allowing certain deductions. House Property consists of any building, flat, shop etc., and the land attached to the building.
Computation of income from Self Occupied property
Income is computed after giving certain deductions from the annual value of the property.
Computation of annual value of self occupied property
The annual value of Self occupied property is taken as NIL if the property is fully utilized for own residential stay during the year or if the property is not actually occupied as owner and is also not let out. If a property is let out for only a part of the year, proportionate annual value will be calculated.
Entitled deductions for self occupied property
The only entitled deduction is interest, if any payable, on loan taken for the purchase or construction of the house property. The maximum deduction on this account is Rs.30,000/-; However, for properties acquired or constructed between the 1st April 1999 and the 1st April 2003 out of borrowed funds, maximum limit is Rs. 1,50,000/-
Computation of income from let out property
Income is computed after giving certain deductions from the net annual value of the let out property.
Computation of net value of let out property
For let out properties the gross annual value will be the greater of the following three amounts:
Municipal value of the property
Actual rent received during the year
Fair rent i.e. rent of similar properties in the same or similar locality.
Out of the gross annual value, municipal taxes actually paid during the year has to be deducted to arrive at the net annual value.
Entitled deductions for let out property
The deductions available for computing House Property Income are:
30% of the net annual value for repair and maintenance and rent collection expenses for the property
Interest on money borrowed to build, buy or repair the property
Ownership of property
Besides owning property in own name, a person is deemed as owner in following three cases:
As transferor of the property to spouse or minor child for inadequate or no consideration
As holder of an impartible estate or a property in part performance of a contract under the Transfer of Property Act
As share holder of a co-operative society or a company, which entitles to hold any property
Capital Gains : If any Capital Asset is sold or transferred, the profits arising out of such sale are taxable as capital gains in the year in which the transfer takes place.
Definition of Capital Gains : Capital Asset means all moveable or immovable property except trading goods, personal effects, agricultural land other than within municipal areas or within 8 kilometers from it wherever notified and gold bonds. Jewelry and ornament are not personal effects and their sale will attract capital gains.
Distinction between short term and long-term asset
Capital Assets are of two types i.e., long term and short term. Long-term capital assets are assets held for more than 36 months before they are sold or transferred. In case of shares, debentures and mutual fund units the period of holding required is only 12 months. Different rates of tax apply for gains on transfer of the long term and short-term capital assets. Gains on short-term capital asset are taxed as regular income.
Computation of Capital Gains
Capital gains are to be computed by deducting the following three amounts from the consideration money received on transfer of the asset.
The actual cost of the asset or its estimated market value as on 1.4.81, if acquired earlier
The cost of improvement, if any, for the asset
Expenses incurred on transfer of the asset; and
In case of a long-term capital asset, the costs are increased as per a Cost inflation index for the year.
Exemptions from Capital Gains
In case of Individuals and HUF, long-term capital gains are exempt if the sale proceeds are reinvested in certain assets.
Some examples:
Profits on sale of residential house is reinvested in a new residential house.
Long term capital gains are invested in notified bonds
These exemptions are subject to certain conditions and the reinvestment has to be made within the prescribed time.
Other Sources Income
Any income other than (a) salary, (b) house property income (c) Income from business or profession, or (d) Capital Gains income, will be taxed as Income from Other Sources. Examples are interest from deposits, winnings from lotteries, races, income from the hiring out of machinery, or machinery compositely with building, royalty, copyright fees, family pension, dividends other than from domestic companies and mutual funds etc.
