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Welcome to presentation on Taxability of House Property

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Welcome to presentation on Taxability of House Property * Prepared by: CA. V.K. SAINI (9999772095) Remedy to assessee -Rs.50 lakhs in case house is situated in Delhi ... – PowerPoint PPT presentation

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Title: Welcome to presentation on Taxability of House Property


1
Welcome to presentation on Taxability of House
Property
2
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3
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4
Income from House Property
5
What consist of House Property?
  • Property must be consist of any building or
    land appurtenant thereto.

6
Conditions for Taxability
  • Property must be in the ownership of the
    Assessee
  • Property should not be use in the business of
    Assessee

7
Is location of property relevant?
  • No, it does not matter that Property is situated
    in India or outside India.
  • In both of the cases Property shall be taxable
    in the head of Income from House Property.

8
Deemed Owner
  • Transfer to spouse or to a minor child who is
    not a married daughter
  • Holder of impartible estate
  • Member of co-operative society

9
Deemed Owner
  • Person in possession of property.
  • (Sec 53A)
  • In case of HUF which have not been partitioned
    to members, the Karta of HUF
  • Person having right in a property for
  • a period not less than 12 years.

10
Computation of Taxable Income from House Property
  • Gross Annual Value xxxxx
  • Less Municipal Tax xxxxx
  • Net Annual Value xxxxx
  • Less Deduction u/s 24
  • (i) S.D. of 30 of Annual Value xxxxx
  • (ii) Interest on Loan xxxxx
  • Taxable Income from H.P. xxxxx

11
What is Gross Annual Value?
  • Sec 23(1)(a)
  • Sum for which Property might reasonably be
    expected to be let from year to year.
  • It is something like notional rent which could
    have been derived, had the property been let.

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14
Let out House Property
  • Where Rent Control Act Apply
  • Step-A
  • Higher of the Fair Value and Municipal Value
  • In any case above amount can not exceed the
    Standard Rent
  • Step-B
  • Higher of the actual rent received or receivable
    and Annual value calculated in step-A
  • Where Rent Control Act does not apply
  • Step-A
  • Higher of the Fair Value and Municipal Value
  • Step-B
  • Higher of the actual rent received or receivable
    and Annual value calculated in step-A

15
Self occupied House Property
  • If assessee have a single house then Annual
    value of such house shall be NIL
  • If assessee have more than one house then
    valuation of one of them shall be at NIL and
    valuation of other houses shall be as they are
    let out.

16
Partly let out House Property
  • Valuation of self occupied portion shall be at
    NIL.
  • Valuation of let out portion as fully let out
  • But if assessee let out the property for some
    period in the year and occupied for the remaining
    period then there is no deduction for the
    occupied period.

17
Rules for the unrealized rent
  • If owner of Property cannot realize the rent
    from the tenant then such rent received rent
    shall be deemed the GAV.
  • But after fulfilling some conditions.
  • Tenancy is bona fide
  • Tenant has vacated, or steps have been taken to
    compel him
  • Tenant is not occupation of any other property
    of the assessee
  • All reasonable steps have been taken to
    institute legal proceedings for the recovery of
    the unpaid rent

18
Subsequent recovery of unrealized rent
  • Such recovery shall be taxable in the previous
    year of receipt of unrealized rent irrespective
    of the ownership if
  • a deduction has been claimed and allowed in
    respect of such unrealized rent
  • and no deduction u/s 24 shall be given on this
    recovery

19
Special provisions for arrears of rent received
  • Where the assessee is the owner of House
    Property
  • and received arrears of rent from such property,
    not charged to income tax in any previous year
  • then such amount, after deducting 30 of such
    amount, shall be deemed to be income from House
    Property
  • irrespective of the ownership of the House
    Property

20
Deductions from Net Annual Value
21
Standard deduction u/s 24(i)
  • In case of let out House Property
  • 30 of the NAV
  • This deduction is notional deduction
    irrespective of actual expenditure for
    realization of rent
  • In case of self occupied House Property
  • There will no deduction as NAV is NIL

22
Deduction of interest on loan
  • In case of let out House Property
  • All the interest paid or due
  • In case of self occupied House Property
  • Deduction is limited to Rs.30,000/- for each
    co-owner separately

23
Maximum Deduction of interest
  • In case of self occupied House Property Maximum
    amount of deduction of interest is Rs. 1,50,000/-
    if the following conditions are satisfied
  • 1. Loan is taken on or after 01.04.1999
  • 2. House Property was acquired/constructed within
    three years from the end of Financial Year in
    which loan was taken

24
Interest attributable to prior construction/acquis
ition period
  • Interest from the date of borrowing
  • Till the end of the previous year prior to the
    previous year in which the house is completed
  • Interest of the previous year in which
    construction was completed will be deducted as
    normal interest

25
Interest on loan taken for repayment of loan
  • Such interest shall be allowed as deduction
  • But interest on interest shall not be allowed

26
Income from the head Capital Gain
27
Capital Asset
  • House Property is a Capital Asset if it is Owned
    by the assessee
  • If holding period of house property is more than
    36 months then it is Long Term Capital Asset
    otherwise Short Term Capital Asset

28
Chargeability of capital gain
  • On the transfer of Capital asset in the previous
    year being house property owned by the assessee
  • If the sale consideration is more than the
    acquisition value of the house property

29
What is transfer?
  • Transfer includes-
  • Sale, exchange or relinquishment
  • The extinguishment of any right in the asset
  • Compulsory acquisition thereof under any law
  • Conversion into stock in trade

30
Computation of Capital Gain
  • Sale proceeds xxxxx
  • Less transfer expenses xxxxx
  • Less indexed cost of acquisition xxxxx
  • Less indexed cost of improvement xxxxx
  • Capital Gain/Loss xxxxx

31
Special provision for full value of Consideration
Sec. 50 C
  • Where consideration received as a result of the
    Transfer of a land or building or both,
  • -is less than the value adopted by stamp
    valuation authority of State Government
  • -for the purpose of payment of stamp duty
  • -then such value adopted shall be deemed to be
    full value of the consideration received.

32
Special provision for full value of Consideration
Sec. 50 C
  • Assessee may claim before any Assessing Officer
    that such value adopted exceeds the fair market
    value of the property on the date of transfer.
  • The Assessing Officer may refer the valuation
    of property to valuation officer
  • and if such value is less than value adopted by
    the A.O. then
  • such value shall be taken for the computation of
    Capital Gain

33
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34
Section 54
  • Exemption of capital gain on transfer of
    residential house property
  • Conditions for avail exemption-
  • 1. Owner must be an individual or HUF
  • 2. There should be transfer of a House Property
    which is Long Term Capital Asset
  • 3. Income from such house should be taxable in
    the head Income from house property

35
Section 54
  • 4. Assessee has purchase another residential
    House Property one year before or two years
  • after the date on which transfer took place
  • 5. Or has within three years after that date
    constructed

36
What will be the amount of exemption?
  • Exemption will be provide to the maximum
  • amount invested into another house property

37
If assessee fails to invest the amount
  • If assessee fails to invest the amount of
    capital gain into another residential house
    property before the due date of filling the
    return of income
  • Then he may deposit the amount into Capital Gain
    account scheme 1988
  • The amount deposited shall be deemed to be cost
    of another house property

38
Withdrawal of exemption
  • Exemption granted on the capital gain shall be
    withdrawn if-
  • the new house property purchased/constructed is
    transferred within three years of
    purchase/construction
  • Amount deposited in the capital gain scheme 1988
    is not utilized for purchase/construction in the
    stipulated time period

39
Can amount deposited be used for any purpose
  • No, the amount deposited cant be used other
    than for purchase/construction of house property
  • If amount is used for any other purpose then
    such amount shall be treated Short Term Capital
    Gain for that previous year and liable to tax

40
Section 54F
  • Exemption of capital gain on transfer of capital
    asset other than house property
  • If an assess transfer a Long Term Capital asset
    other than house property
  • and purchase house property then he can avail
    exemption of this section

41
Conditions for availing exemption
  • Assessee must be an individual or HUF
  • Transferred capital asset is not a residential
    house property
  • Capital asset is a Long Term Capital Asset
  • On the date of transfer assessee has not more
    than one house
  • Assessee has purchase another House Property one
    year before or two years after the date on which
    transfer took place

42
Amount of exemption
  • Exemption from Capital Gain shall be avail in
    the proportion of amount of sale consideration
    invested in the new House Property
  • In other words amount of exemption shall be
  • Capital gain amount invested
  • sale consideration

43
Other conditions are same
  • All other conditions of section 54 are applied
    to this section as they applied in section 54

44
Some cases related to House Property
  1. Incase of sale of land and building, capital gain
    is bifurcated between long term capital gain and
    short term capital gain
  2. Construction of new floor in the same building
    shall be entitled to exemption under section 54
  3. Release of share by one co-owner in the favor of
    another co-owner shall be deemed purchase by
    another co-owner
  4. Amount of capital gain partly invested in
    purchase of new house property and partly amount
    used in construction of new floor is allowed

45
Wealth Tax Act,1957
46
Charge of Wealth Tax (Sec.3)
  • Wealth Tax shall be charged on the net wealth on
    the corresponding valuation date
  • of every Individual, HUF and company
  • at the rate of 1 of the amount by which net
    wealth exceeds Rs.15 lakhs

47
What is Asset?
  • Section 2(ea)(i)
  • Asset means-
  • Any building or land appurtenant thereto,
    whether used for
  • - residential purpose or
  • - commercial purpose (if it is vacant or let
    out) or
  • - for the purpose of maintaining of guest house

48
Not to be included
  • A House meant exclusive for residential purpose
  • A house which is allotted by a company to an
    employee or officer or whole time director,
    having a gross salary of less than Rs.5 lakhs
  • Any house for residential or commercial purpose
    which form part of stock in trade

49
Not to be included
  • Any house used for the purpose of any business
    or profession carried on by him
  • Any residential property that has been let out
    for a minimum period of 300 days in the previous
    years
  • Any property in the nature of commercial
    establishment or complexes

50
Taxability of farm house
  • Farm house shall be included in Asset if it is
  • situated within 25 km from the local limit of
  • any municipality or a cantonment board

51
Computation of Net Wealth
  • Aggregate value of all assets wherever located
    belonging to the assessee
  • Aggregate value of all asset required to be
    included in the net wealth of the assessee
  • Less Exemption u/s 5 of Wealth Tax Act
  • Less Debts owed by the assessee on the
    valuation date relating to asset included in his
    wealth

52
Exemption u/s 5 of Wealth Tax Act
  • Wealth Tax shall not be payable on the
    following
  • 1. Any property held under trust or other legal
    obligation for any public purpose of a charitable
    or religious nature in India sec.5(i)
  • 2. The interest of the assessee in the
  • co-parcenary property of any HUF sec.5(ii)

53
Exemption u/s 5 of Wealth Tax Act
  • 3. Any building in occupation of Ruler being a
    building which was decleared as his official
    residence by the Central Govt. under Merged State
    Order sec.5(iii)
  • 4. One house (whether residential or commercial
    or whether let out or self occupied) or part of
    a house or a plot of land of 500 sq. metres or
    less sec.5(vi)

54
Determination of value of Immovable Property
  • Valuation of Property as per
  • Rules 3, 4 and 5 of Part B of
  • Schedule III xxxxx
  • Add Adjustment for unbuilt Area
  • As per Rule 6 xxxxx
  • Less Adjustment for unearned
  • increase in the value of land xxxxx

55
Valuation of Property
  • Valuation of property shall be done as per
  • rules 3,4 and 5 of part B of schedule III
  • which is divided in 5 steps

56
Step-1 Determination of actual rent
  • Actual rent received or receivable
  • Add
  • 1. Taxes in respect of the property agreed to be
    borne by the tenant
  • 2. 1/9th of actual rent received or receivable
    where the repairs are to be borne by the tenant
  • 3. 15 interest on the deposit received reduced
    by interest actually paid by the tenant (only if
    such deposit is for more than three months)

57
Step-1 Determination of actual rent
  • 4. Non refundable deposit spread equally over
    the period of the lease
  • 5. Value of any perquisite or benefit received by
    the assessee for leasing out the property
  • 6. Any obligation of the owner met by the tenant

58
Step-2 Determination of annual rent
  • Where property is let out for the entire year
  • Actual Rent
  • Where property is let for part of the year
  • Actual rent12
  • No. of month for which property was let out

59
Step-3 Determination of Gross Maintainable Rent
60
Step-3 Determination of Gross Maintainable Rent
61
Step-4 Determination of Net Maintainable Rent
  • Gross Maintainable Rent xxxxx
  • Less 15 of GMR xxxxx
  • Less Municipal Taxes xxxxx
  • (on paid basis whether
  • by owner or tenant)
  • NET MAINTAINABLE RENT xxxxx

62
Step-5 Valuation of Property
  • CASE-1
  • Where property has been acquired or constructed
    on or before 31.03.1974
  • CASE-2
  • Where property has been acquired or constructed
    after 31.03.1974

63
Case-1
  • Property constructed on freehold land
  • Property constructed on Lease hold Land and
    unexpired Period of Lease is 50 years or more
  • Where unexpired Period of Lease is less than 50
    years
  • NMR 12.5
  • NMR 10
  • NMR 8

64
Case-2
  • Value of the property shall be higher of the
    following
  • 1. NMR Capitalization Factor (12.5/10/8)
  • 2. Cost of acquisition /construction cost of
    improvement

65
Remedy to assessee
  • Valuation of any one house property which is
    constructed/acquired after 31.03.1974
  • and used for his own residential purpose
    throughout the year
  • and whose cost of acquisition/construction
    cost of improvement does not exceed

66
Remedy to assessee
  • -Rs.50 lakhs in case house is situated in
  • Delhi/Mumbai/Kolkata/Chennai
  • -Rs.25 lakhs in case of other cities
  • shall be the NMR Capitalization Factor
    (12.5/10/8)

67
Adjustment for unbuilt area of plot of land as
per Rule-6
  • If unbuilt area gt Specified area
  • then there shall be addition in the value of
  • property as per Rules 3, 4 5 of
  • as per of default

68
What is percentage of default?
  • Unbuilt Area - Specified Area
  • Aggregate Area

69
What is Specified Area?
  • Specified Area is in the sense of permissible
  • unbuilt area
  • Therefore if Unbuilt Area gt Specified Area,
  • then addition shall be made as per Rule 6

70
Specified Area mentioned in Wealth Tax Act
  • Where property situated in
  • Delhi, Mumbai, Kolkata, Chennai
  • Specified citied
  • Other cities
  • 60 of aggregate area
  • 65 of aggregate area
  • 70 of aggregate area

71
Addition in the value of property as per Rule -6
  • of default
  • Upto 5
  • 5 to 10
  • 10to 15
  • 15 to 20
  • Above 20
  • Addition
  • NIL
  • 20 of value as per rules 3 4 5
  • 30 of value
  • 40 of value
  • FMV of property (Rule-8)

72
Adjustment for unearned increased in value of
land as per Rule-7
  • If the property is constructed on a land taken
    on lease from Govt. Authority
  • and Govt. Authority is entitled to recover a
    specified of unearned increase in the value of
    land at the time of transfer of property
  • then, the value determined as per Rules 3, 4, 5
    6 shall be reduced by the least of the
    following

73
Adjustment for unearned increased in value of
land as per Rule-7
  • Amount of unearned increase liable to be
    recovered by the Govt. Authority
  • 50 of the value as per Rules 3, 4, 5 6

74
What is unearned increase?
  • Unearned increase means the difference between
    the
  • value of such land as determined by the Govt.
    Authority for the purpose of calculating such
    increase
  • and the lease premium paid or payable to the
    Govt. Authority for lease of land

75
Rule-8
  • Notwithstanding contained in Rules 3 to 7 the
    value of the property shall be estimated to be
    the price which, in the opinion of the Assessing
    Officer,
  • it would fetch if sold in the open market on the
    valuation date.

76
Cases, where Rule-8 apply
  1. Where the A.O. is of the opinion that it is not
    practicable to the apply Rules 3 to 7
  2. Where the difference between the unbuilt area and
    the specified area exceeds 20 of the aggregate
    area
  3. Where the property is constructed on a leasehold
    land and the lease expires within a priod of less
    than 15 years and the deed of lease does not give
    an option for the renewal of the lease

77
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