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Deductibility of taxes Levied by Local Authority (i.e. Municipal taxes) while computing Annual Value of House Property Income [Proviso to Section-23(1)]

 

Any tax levied by local authority in respect of the house property shall be allowed as deduction while calculating annual value of such house property. The local .authority may be known by various names such as Municipal Corporation, town area committee, cantonment board etc. The local authority imposes certain taxes on the owner or occupier of have property in order to meet the cost of maintaining the area, town or city. Such taxes are generally charged as a % of the municipal value of the house property as determined by the local authority or municipal corporation.

Important points

(i) Deductible out of Gross Annual Value. Such local taxes shall be deducted from the annual value of house property computed on the basis of municipal value, Fair rental value, Standard Rent or Annual rent which is called ‘Gross Annual Value’.

(ii) Basis of Allowability. Local taxes shall be allowed as deduction in the pervious year in which such taxes are actually paid. Thus, local taxes in respect of house property which have not been paid still pending at the end of previous year, shall not be allowed as deduction. However, such taxes belonging to any part of the year shall also be allowed as deduction in the previous year in which these are actually paid.

(iii) Payer of local taxes. The local taxes shall be allowed as deduction only if such taxes are paid and borne by the owner of the house property. Thus, where the land lord passes on the burden of payment of local taxes on tenant and the tenant actually pays such taxes, there shall not be allowed as deduction while calculating annual value. Thus, where, a part of such taxes is paid by owner the other part is paid by tenant, only taxes paid by owner shall be allowed as deduction.

(iv) Various forms of local taxes. Local taxes may include the following taxes

(a) House tax

(b) Fire tax

(c) Water tax –

(d) Conservancy tax

(e) Education cess

(t) Sanitation cess

(g) Sewerage tax

(h) Any other tax levied by local authority in respect of house

(v) Taxes levied by state government. Such taxes though levied in respect of house property, shall not be allowed as deduction from gross annual value.

(vi) Local taxes relating to foreign country. If the house property is situated in a foreign country, taxes levied by local authority in that country shall be allowed as deduction if such taxes are paid by the owner during the year.

(vii) Non-applicability of section 43 B. The deductibility of municipal. taxes under the head ‘Income from house property’ is not governed by section 43B which is applicable only while claiming municipal tax on business premises as business expense (along with certain) under the head Income from business or profession.

 
More Topics... @ 'House Property'
Definition & Meaning of the Head ‘ Income from House Property’
 Deemed Owner of House Property
Exempted Incomes From House Property [Section-10]
 Exempted Incomes from Cooperative Society
Annual Value as Calculation of Income from House Property
Determination Of Annual Value Of    House Property
Selection of Annual Rental Value (Gross Annual Value) for Let Out House Property
Deductibility of Taxes Levied by Local Authority (i.e. Municipal taxes) while computing Annual Value of House Property Income [Proviso to Section 23(1)]
Selection of Annual Rental Value for Self-Occupied House Property
DEDUCTIONS U/S - 24 Out of Net Annual Value (NAV) of House Property Income
Treatment of Pre-acquisition/Pre-construction period Interest
Treatment of Unrealised Rent of House Property Income
 
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