www.incometaxmanagement.com : Discover the Simple Way of Tax Management , Planning & Saving !!!
Share |

Computation of Income from.. "Let-Out House Property" Income

 

2.3.      COMPUTATION OF INCOME FROM  “LET-OUT PROPERTY” :

After arriving at Rateable Value and Annual Value, if the property is let-out (given for rent / lease), the following deductions for which the owner is eligible :

1.  Repair Charges (restricted to 30% of Annual Value of the Property).

2.  Interest on borrowed capital for the purpose of acquisition, construction, re-construction, repairs, renovation etc.

2.3.1.   GROSS ANNUAL VALUE [ Sec. 23(1)]

Gross Annual Value is determined as follows—

Step 1

Find out reasonable expected rent  of the property

Step 2

Find out Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy which shall be calculated as below

Step 3

Find out which one is higher – amount computed in Step 1 & Step 2

Step 4

Find out Loss because of Vacancy

Step 5

Step 3 minus Step 4 is Gross Annual Value

Step-1: Find out reasonable expected Rent of the Property :

The reasonable expected Rent under will be computed on the basis of 3 factors, namely---

a.  Municipal Rental Value (MRV) : For collecting Municipal Taxes, Local Authorities i.e. Municipal Corporation / Committee etc. conducts a periodical survey of the house properties in their local limits. On the basis of such survey the Rental Value are fixed which serves as the basis for levying tax. The Rental Value so fixed is called Municipal Rental Value ( M.R.V.).

b.  Fair Rental Value ( FRV ) :           
Fair Rent of the Property can be determined on the basis of Rent fetched by a similar property in the same or similar locality. It is based on the principle that Rent prevailing in same locality for similar sized property is almost the same . Such Rental Value is called Fair Rental Value ( F.R.V.)

c.  Standard Rent of the Property (SR) :       
Standard Rent is the maximum rent which a person can legally recover from his  tenant under a Rent Control Act. If other words, if a property is covered under this Rent Control Act, its reasonable expected Rent cannot exceed the standard Rent fixed or determined under the Rent Control Act.

The higher of (MRV) and (FRV), subject to maximum of (SR) is reasonable expected Rent.

Step-2: Find out Rent actually received or receivable :

Find out Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy which shall be calculated as below :

Rent of the previous year ( or that part of the pervious year) for which the property is available for letting out

Less : Unrealized Rent of a few conditions are satisfied

Rent received / receivable before deducting Loss due to Vacancy

 

Xxxx

Xxxx

xxxx

 
The following points should be noted ---

      1. Loss due to vacancy shall not be deducted.

      2. Occupier’s or tenant’s share of municipal tax realized from the tenant cannot be added to Actual Rent received or receivable.

      3. If the  tenant has undertaken to bear the cost of repairs, the amount spent by the tenant cannot be added to rent received or receivable.

      4. A non-refundable security will be added in rent received or receivable on pro rata basis.

      5. A refundable security cannot be included in rent received or receivable.

      6. Advance rent can not be rent received / receivable of the year of receipt.

      7. Commission paid by the owner of a property to a broker for rental income is not deductible.

2.3.2    DEDUCT MUNICIPAL TAX

From Gross Annual Value computed above, deduct Municipal Taxes ( including Service Tax) levied by any local authority in respect of the house property. Municipal Taxes are deductible only if..

  1. these taxes are borne by the owner , and
  2. are actually paid by him during the previous year.

Municipal taxes, levied by local authority but not paid by the assessee during the previous year are not deductible.
The remaining amount left after deduction of Municipal Taxes is Net Annual Value (NAV)

2.3.3.   DEDUCTION UNDER SECTION 24

The following 2 Deductions are available under section 24---


a.  Standard Deduction ; and

b.  Interest on borrowed capital

In other words, no deductions can be claimed in respect of that expenditure which is not specified in Sec. 24. For instance, no deduction can be claimed in respect of expenses on insurance, ground rent, land revenue, repairs, collection charges, electricity, water supply, salary of liftman, etc.

A. Standard Deduction [ Sec. 24(a)] :           30% of net annual value id deductible irrespective of any expenditure incurred by the taxpayer.

B. Interest on Borrowed Capital [ Sec. 24(b)] : Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property.

The following points should be kept in view :-

  1. If capital is borrowed for the purpose of purchasing a plot of land, interest liability is deductible even if construction is financed out of own funds.
  1. Interest on borrowed capital is deductible on “accrual” basis. It can be claimed ad deduction on yearly basis, even if the interest is not actually paid during the year.
  1. Interest on unpaid interest is not deductible.
  1. No deduction is allowed for any brokerage or commission for arranging loan.
  1. Interest on  a fresh loan, taken to repay the original loan raised for the aforesaid purposes , is allowable as deduction.
  1. Interest on borrowed capital is deductible fully without any maximum ceiling ( in case of let-out property)
 
 
How is a Search Operation Conducted by Income Tax Department ?
The provisions relating to search and seizure are contained in section 132 of the Income Tax Act, 1961.
 
Sec. 143(3) : Scrutiny Assessments by Income Tax Department
Scrutiny assessment refers to the examination of a return of income by giving an opportunity to the assessee to substantiate the income declared and the expenses, deductions, losses, exemptions, etc. claimed in the return with the help of evidence..
 
“Penalties” Under Income Tax Act. 1956
Penalties by way of monetary payments are charged under the Income Tax Act for various defaults relating to payment of taxes, maintenance of accounts, for noncompliance and non co-operation during proceedings, for evasion of tax, etc..
 
Income of Individuals And HUFs – As a Tax Payers Under Income Tax Act, 1961.
The individual tax payers and also the HUFs while proceeding to calculate the net taxable income in the first phase are required to arrive at the gross total income under different heads of income...
 
Types Of Income Subject To TDS [Deduction Of Tax At Source]
The following types of incomes are mainly subject to deduction of tax at source: (a) Salaries Section 192. (b) Interest on securities Section 193..
 
Pre-Requisite For Claiming Income Tax Refund
For claiming income tax refund the first prerequisite is that there should have been excess tax paid or deducted at source on the basis of return of income.
 
Section-139(1) : Provision for Voluntary Income Tax Return
Every person,— (a) being a company or a firm; (whether having income or loss) or (b) being a person other than a company or a firm if his total income or the total ncome of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall file a return of his income in the prescribed form.
 
Benefits of Filing Income Tax Returnsn
We have heard many a times that every individual whose total income exceeds the maximum exemption limit is obligated to furnish his/her Income Tax Return or ITR.
 
Section-139(9): Defective Tax Return
Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of intimation.
 
Section 139(5) : Revised Income Tax Return
If any person, having furnished a return u/s 139(1), or in pursuance of a notice issued under section 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time.
 
Section-139(4A) : Income Tax Return of Charitable and Religious Trusts
Every person in receipt of income derived from property held under trust or other legal obligation wholly or partly for charitable or religious purposes or of income being voluntary contributions referred to in section 2(24)(iia) shall.
 
Section-139(4) : Belated Income Tax Return
If an assessee has not furnished a return of his income within the time allowed to him under section 139(1) or within the time allowed under a notice issued under section 142(1).
 
Get Updated ...
 
TUTORIALS LIBRARY
GUIDE & FAQ @ TAX
GRAPHICAL PRESENTATION @ TAX
TIPS & TRICKS @ TAX
MANAGERIAL & FINANCIAL DECISIONS @ TAX
5 GOLDEN RULES OF TAX PLANNING
FAMILY TAX PLANNING
DEDUCTIONS FROM YOUR INCOME
EXEMPTED INCOMES
HUF - FORMATION, MANAGEMENT & TAX PLANNING
COMPUTATION OF GROSS TOAL INCOME
INCOME TAX @ GLANCE
MULTIPLE KNOWLEDGEBASE ON TAX
51 TIPS ON TAX PLANNING
APPEALS UNDER INCOME TAX
ASSESSMENTS
PENALTIES UNDER IT DEPATMENTS
TAX SAVING SCHEMES
TAX READY RECKONER
TAX RATES
PROSECUTIONS UNDER INCOME TAX DEPARTMENT
TAXATION SYSTEM IN INDIA
CHARITABLE & RELIGIOUS TRUST - TAXATION
 
 
KNOWLEDGE BASE !
New Topics @ Tax KnowledgeBase...
 
Tally.ERP 9 Book ( Advanced Usage ) @ Rs. 450
 

Enter your email address:
[ Get Income Tax Management Knowledge-BASE Feed delivered by eMail ]

Delivered by FeedBurner

 
ALL INDIA FEDERATION OF TAX PRACTITIONERS
(National Tax Conference 2012
at Bhubaneswar, Odisha)

ARTICLES...
 
 
Guide & FAQ on Tax Knowledgebase @ Taxation Income Tax @ Glance HUF - Formation, Planning & Taxation

Disclaimer:
All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may click here to visit the web site of Income Tax Department for resolving their doubts or for clarifications

 
Contact Us :

SWAYAM EDUCATION
Mandal Bagicha, Hemkapada,
Sunhat, Balasore-756002 ( Odisha)
Mob: 9437264738
eMail ID : incometaxmanagement@gmail.com

www.IncomeTaxManagement.Com