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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 or Municipal 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 or Municipal 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 43B.

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.

 

Related Topics... 'House Property' [ Sec. 22 to 25]

  1. Definition of the Head ' Income from House Property ' - [Section 22]

  2. Deemed Owner of House Property (Section 27) for calculating ' Income from House Property '

  3. Exempted House Property Income for calculating ' Income from House Property '

  4. Computation of 'Annual Value' of a Houes Property [Section 23(1)] for calculating ' Income from House Property '

  5. How to Compute Taxable Income from Self-Occupied House Property

  6. Deductibility of Taxes Levied by Local Authority (i.e. Municipal taxes) of House Property Income

  7. DEDUCTIONS Out of Net Annual Value (NAV) of House Property Income (Section 24) for calculating ' Income from House Property '





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