Slightly digressing off the topic, I wish to let the users know about certain points of IT Sections 22, 23 and 24. These sections deal with "Income from House Property".
- Under section 22, every owned property classifies under the 'Income from house property' section. - The qualification of owned property means that the construction is complete, the local authority has issued a completion certificate and you are in possession of the property. - However u/s 23, one of the properties amongst the all you own is exempt from 'Income from house property' provided that you are occupying the property for self and not deriving any rent. For example, you may own a property in City A and may be living on rent in City B (maybe in City A itself) but if the first-owned property is not rented out then the exemption applies. - If the property is not self-occupied and is let out on rent then Rental income is taxable under the head 'Income from house property'. - Any second property or subsequent, regardless whether self-occupied, unoccupied/unlet, or let for rent is liable for 'Income from house property'. - Note the phrase "unoccupied and/or unlet". You may not be deriving any real income from the 2nd property but for the purpose of Income Tax, Annual value of property is assessed to tax in the hands of the owner even if he is not in receipt of the income. - Income from subletting is not taxable under section 22. - It is only the owner (or deemed owner) of house property who is liable to tax on income under this head. Owner may be an individual, firm, company, cooperative society or association of persons. - Section 27 of the Income Tax Act provides that, in certain circumstances, persons who are not legal owners are to be treated as deemed owners of house property for the purpose of tax liability under this head. - Ownership must be of the superstructure, i.e., the building or flat in a block of flats. It is not necessary that the assessee is also the owner of the land.
Having said that:
The basis of calculating Income from House property is the 'annual value'. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year.
'Annual Value' is taken as the highest of - Rent payable by the tenant (actual rent) - Municipal valuation of the property. - Fair rental value (market value of a similar property in the same area). - Standard rent payable under the Rent Control Act.
From the 'Income from house property', the following deductions are allowed: - Actual Municipal Taxes Paid by the owner: Only for 2nd property onwards. Since the first self-occupied property is exempt for income this is not applicable. - Deductions under Section 24: (a) 30% of the net annual value as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred. (b) Interest on borrowed capital: In case the property is let out, the entire amount of interest accrued during the year is deductible. The borrowals may be for construction/acquisition or repairs/renewals. (For self-occupied first property the interest amount eligible for deduction is limited to Rs. 1,50,000 provided that the loan was taken after 1999 and the property is complete and possession handed over)
Interest attributable to period prior to construction/acquisition: Money may be borrowed prior to the acquisition or construction of the property. In such a case, the period commencing from the date of borrowing and ending on the date of repayment of loan or on March 31 immediately preceeding the date of acquisition or completion of construction, whichever is earlier, is termed as the pre-construction period. The interest paid/payable for the pre-construction period is to be aggregated and claimed as deduction in five equal instalments during five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
It should be noted that:
a) brokerage paid for any purpose is not allowed for exemption b) Interest on Interest is not allowed
