Income from House Property - Direct Tax Code, 2010

[Selvakumar Padayachi]

As we are expecting the DTC be implemented from 1^st April 2012, we have to be familiar with the DTC provisions. In general the DTC looks and be simple but it is complicated unless otherwise if we have studied the entire provisions of the act because, things are spread out here and there and which are disconnected with relevant provisions. One must search the entire DTC to find solution. Hence it is sure that we should have consolidated view about the DTC provision before we conclude any issue with respect to this Code. Let us go through the DTC provisions for Income from house property.

Only income from letting of house property shall be taxable under this head of income as per the DTC, even if the letting in the nature of trade, commerce or business.

What is mean by “House Property”.

“house property” mean (a) any building or land appurtenant thereto; along with facilities and  services whether in-built or provided separately; or (b) any building along with any machinery, plant, furniture or any other facility or services whether inbuilt or provided separately; [Section 314(119).]

Based on the definition we can conclude that even factories are taxable under the head house property. Certain companies may have the business of letting their factory premises for rent which are now taxable under the head Income from house property and not under business income; hence they cannot claim deduction beyond 20% of rent receivable or received (Gross rent). Letting means Property that is leased or rented out or let. It is not defined in the code but in general it has this meaning.

Certain property owners are receiving lump sum amount in the name of the lease of property instead of collecting rent, and this lump sum will be repaid after the period of tenure mentioned in the agreement if any entered. How this can be considered for income from house property. On what basis and how rent shall be computed for direct tax code. Still this is remains unsolved.

When a property which is taxable under this head owned by two or more persons then if their shares are definite and ascertainable shall be computed separately for each of such person in respect of his share. When there is a dispute then it shall be computed as AOP

The following are the properties which are not taxable under the head Income from house property:

1. To the house property, or any portion of the house property, which is used by the person as a hospital, hotel, convention centre or cold storage; and forms part of SEZ, the income from which is computed under the head “Income from Other Sources”
2. b. To a property which is not ready for use during the financial year. What is mean by “not ready for use”? It is up to the tax payer to prove that whether the property was ready to use during the financial year or not. More over the gross rent in respect of a house property or any part of the property shall be the amount of rent received or receivable, directly or indirectly, for the financial year or part thereof, for which such property is let out. Hence if not let out we can say that it is not subject to tax. This benefit is not there in existing Income-tax Act, 1961.

How to compute taxable income under this head.

	Particulars	Amount (Rs)
A	Rent received or receivable, directly or indirectly, for the financial year or part thereof, for which such property is let out.	XXXX
	LESS:
B	The amount of taxes levied by a local authority in respect of such property, to the extent the amount is actually paid by him during the financial year.	XX
C	A sum equal to twenty per cent(20%)  of the gross rent (A)	XXX
D	Any Interest on loan taken for the purposes of Acquisition, Construction, repair or renovation of the property or loan taken to repayment of first loan.	XXX
E	Income/(Loss) from House Property	XXXX

Interest on loan which pertains to the period prior to the financial year in which the house property has been acquired or constructed shall be allowed as deduction in five equal installments beginning from such financial year

The amount of rent received in advance shall be included in the gross rent of the financial year to which the rent relates. The amount of rent received in arrears shall be deemed to be the income from house property of the financial year in which such rent is received. This arrears of rent shall be included in the total income of the person under the head income from house property, whether the person is the owner of the property in that year or not. A sum equal to twenty per cent of the arrears of rent shall be allowed as deduction towards repair and maintenance of the property.

Self Occupied or Property which is/are not let out:

If any property owned by the taxpayer had not let out during the financial year then he has to claim the interest on loan take for the house under section 74 (Tax incentives) and not under income from house property. The following conditions to be fulfilled to claim the same: -

• Only Individual or HUF can claim under this section 74.

• The house property is owned by the person and not let out during the financial year

• The acquisition or construction of the house property is completed within a period of three years from the end of the financial year in which the loan was taken; and

• The person obtains a certificate from the financial institution to which the interest is paid or payable on the loan. (Only loan taken from financial institutions are eligible to be claimed under this section)

• The amount of deduction under this section shall not exceed Rs.1,50,000/-

Exhibit- 1:

Mr.Vimaal has the following six house properties out of which one of them are not ready for use as at 31.03.2013. The following are the details for the financial year 2012-13. The taxable income under the head Income from house property and /or deduction can be claimed shall be as follows:- 

Name of the Property	Nature	Gross Rent p.a.	Interest on loan **	Taxes paid for the property	Income/(Loss) From House Property	Deduction U/s 74
Property # 1	Self Occupied	Nil	Rs.2,50,000	Rs.2,500	Nil	Rs.1,50,000
Property # 2	Let out	Rs.1,20,000	Rs.1,75,000	Rs.1,500	(Rs.80,500)	Nil
Property # 3	Let out	Free of Rent	Rs.1,85,000	Rs.3,500	Nil	Nil
Property # 4	Let out	Rs.2,40,000*	Rs.1,55,000	Rs.5,000	Rs.32,000	Nil
Property # 5	Not Let out	Nil	Rs.1,86,000	Rs.2,000	Nil	Rs.1,50,000
Property # 6	Not ready to use	Nil	Rs.1,98,000	Nil	Nil	Nil
Total					(Rs.48,500)	Rs.3,00,000

*this tenant is not willing to pay the rent and the case is pending in court.

** From Financial Institutions.

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