Monday, November 5, 2012

How is the annual value of a house property calculated?

Under the Income Tax Act what is taxed under the head ‘Income from House Property’ is the inherent capacity of the property to earn income called the Annual Value of the property. The above is taxed in the hands of the owner of the property.
Computation Of Annual Value
(i) GROSS ANNUAL VALUE(G.A.V.) is the highest of
(a) Rent received or receivable
(b) Fair Market Value.
(c) Municipal valuation.
(If however, the Rent Control Act is applicable, the G.A.V. is the standard rent or rent received, whichever is higher).
It may be noted that if the let out property was vacant for whole or any part of the previous year and owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause(a) above, then the amount actually received/receivable shall be taken into account while computing the G.A.V. If any portion of the rent is unrealisable, (condition of unrealisability of rent are laid down in Rule 4 of I.T. Rules) then the same shall not be included in the actual rent received/receivable while computing the G.A.V.
(ii) NET VALUE (N.A.V.) is the GAV less the municipal taxes paid by the owner. Provided that the taxes were paid during the year.
(iii) ANNUAL VALUE is the N.A.V. less the deductions available u/s 24.
Deductions U/S 24:- Are exhaustive and no other
deductions are available:-

(i) A sum equal to 30% of the annual value as computed above.
(ii) Interest on money borrowed for acquisition/construction/ repair/renovation of property is deductible on accrual basis. Interest paid during the pre construction/acquisition period will be allowed in five successive financial years starting with the financial year in which construction/acquisition is completed. This deduction is also available in respect of a self occupied property and can be claimed up to maximum of Rs.30,000/-. The Finance Act, 2001 had provided that w.e.f. A.Y. 2002-03 the amount of deduction available under this clause would be available up to Rs.1,50,000/- in case the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is completed before 1.4.2003. The Finance Act 2002 has further removed the requirement of acquisition/ construction being completed before 1.4.2003 and has simply provided that the acquisition/construction of the property must be completed within three years from the end of the financial year in which the capital was borrowed.
Some Notable Points
In case of one self occupied property, the annual value is taken as nil. Deduction u/s 24 for interest paid may still be claimed therefrom. The resulting loss may be set off against income under other heads but can not be carried forward.
If more than one property is owned and all are used for self occupation purposes only, then any one can be opted as self occupied, the others are deemed to be let out.
Annual value of one house away from workplace which is not let out can be taken as NIL provided that it is the only house owned and it is not let out.
If a let out property is partly self occupied or is self occupied for a part of the year, then the value in proportion to the portion of self occupied property or period of self occupation, as the case may be is to be excluded from the annual value.

From assessment year 1999-2000 onwards, an assessee who apart from his salary income has loss under the head “Income from house property”, may furnish the particulars of the same in the prescribed form to his Drawing and Disbursing Officer who shall then take the above loss also into account for the purpose of TDS from salary.
A new section 25B has been inserted with effect from assessment year 2001-2002 which provides that where the assessee, being the owner of any property consisting of any buildings or lands appurtenant thereto which may have been let to a tenant, receives any arrears of rent not charged to income tax for any previous year, then such arrears shall be taxed as the income of the previous year in which the same is received after deducting therefrom a sum equal to 30% of the amount of arrears in respect of repairs/collection charges. It may be noted that the above provision shall apply whether or not the assessee remains the owner of the property in the year of receipt of such arrears.

Tax Implication on Pension

There are several ways in which one can receive a pension and the exact details have to be checked to see the extent of a taxable element that is involved in the entire process. The nature of the payment actually determines the extent of the income that would be taxable and based on this the required effect would have to be given to the whole process. This aspect is important as the tax will eat into the final income that is available in the hands of the individual. Here is a closer look at the entire issue and how the investor or individual can tackle the position.

Pension:One of the ways in which you can receive income in your retirement years is through the route of pension. This is a way wherein you get a regular sum of money at specific time intervals usually monthly so that there is a regular flow of income that continues after you stop working. One of the changes that occur once you retire is that the regular income flow stops. Pension is meant to be a replacement for this situation where you can ensure that there is not a large difference that is visible immediately hence this will be a way in which you can ease the entire situation. A central theme of the pension effect in the field of taxation is that the amount received as a pension is taxable though there could be a separation of the heads under which the income would go depending upon the source from which the amount has been received. Once this is known then the additional elements can be tackled properly.

Received from employer:A way in which pension arises for an individual is that there is a regular payout that is available from their former employer. This is possible due to the long service that the individual has put in with the employer or that there are several conditions related to such a regular payout of the pension that is met by the employee. The end result is that there is a regular payout that they will get in the form of pension. Since the payout received will be taxable the next question is the head in which the amount will be considered.

In this sense the source from which the payout is received becomes very important so in this case it is the former employer who is making the payout. Due to this reason the amount is actually considered under the head of income from salaries and the individual would have to include the amount of the pension that they have received under this head. This means that there are no additional deductions that would be allowed from the income and hence the manner of the taxation of the net income is also clearly determined.

Other sources:There are several other ways in which an individual can receive a pension and this would cover receipts from an insurance company or it could be some other investment where there is a promise of a regular flow of income over a period of time which will act like a pension. In these situations the manner in which the taxation impact is covered is slightly different so there has to be attention to this area. The basic nature of the income under the taxation impact remains the same which is that the amount received will be fully taxable. If there is a lumpsum received on the maturity of an insurance policy then this might be tax free but it is not pension. Usually the pension received from different sources will go under the head Income from other sources. One thing that is crucial in this whole working is that when there is a family pension that is received then there will be a standard deduction that will be applicable so this is something that will provide an element of relief but the deduction is restricted to one third of the amount or Rs 15,000 whichever is less.