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.

Taxation of Perquisites in India

If there are any benefits in addition to your salary that you obtain from your employer and if you are worried about the taxation of such benefits, then this content might give you an idea on what these Perquisites (benefits) are and how they are taxed in India.

 

Perquisites:-

Perquisite is actually a form of profit that an employee obtains from his/her employer apart from the salary or wages that he/she gains. As per the income tax department of India, this beneficial addition can be in the form of a cost free or reduced price accommodation provided by the employer, in the form of a service used or product purchased by the employee for which the employer pays the full amount or part amount, any equity or other form of security provided to the employee from the employer at a concessional price or free of cost.

There was a period when this benefit was taxed in the hands of employer in the name of ‘fringe benefit tax’. Now as ‘perquisite’, it taxed in the hands of the receiver who is the employee. The value of the benefit received as perquisite is considered to be a form of income and is added with the salary and taxed.

 

Categories and valuation of Perquisites for taxation:-

The valuation of each type of benefit is made as per the rules of income tax act. First the employer is categorized into one of the two categories. Further the taxation is made as per the rules in income tax act. One category contains a company or a firm, a local body, Association of Persons or Body of Individuals. Another category contains government companies, sole proprietor companies, Hindu Undivided Family etc.

Accommodation provided by government companies to employees irrespective of state or central government the tax is paid by the government organization which is the employer. For private firms the perquisite tax for this benefit is applicable as a percentage of salary based on the city where he/she is accommodated. There are certain exceptions for accommodation in mining areas, oil research areas and also in conditional transfer.

Facilities like sources of energy (gas, electricity) and water if provided or paid by the employer, the tax is charged in the hands of the employee based on the cost per unit of the facility.

The educational facility of the employee’s relative (son/daughter) if provided by the institution owned by the employer or where the expenses of education of the student is taken care of by the employer, the tax as perquisite is applicable in the hand of the employee. There is an exception in this case. If the expense for education does not exceed Rs 1000 per month in other schools in the same locality then this perquisite is tax exempt.

If an employee owns a vehicle (car) and uses it for both personal and official purposes, tax exemption is based on the cubic capacity of the car engine. A car whose engine is less than 1600 CC the amount of tax exemption is Rs 1200 per month and to those having over 1600 CC engine the amount exempt is Rs 1600 per month.

 

Fringe benefits taxed (FBT) in the hands of employer:-

• 20% of the expenses on telephone or mobile provided to the employee for official purposes is considered as fringe benefit and is taxed in the hands of employer.
• 50% of the expenses on health club facility provided to the employee fall under fringe benefit category.
• 5% of the expenses on travel to foreign countries by the employee from the provided by the employer are considered to be fringe benefit.

The categories mentioned above just give an idea about how perquisites and fringe benefits are categorized. There are many more categories and areas of taxation for both FBT and perquisites. The valuation can change from time to time based on the changes made to tax laws.

 

Note: As of now FBT has been withdrawn and all perquisites are taxed in hands of employee after giving such slabs of exemption.

Deductions under Income Tax India Act 1961

 Section 80 C

Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

Schemes eligible for Section 80C benefits

• PPF
• ELSS - Mutual Funds
• NSC
• KVP

• Life Insurance
• Senior Citizen Saving Scheme 2004
• Post Office Time Deposit Account

Section 80CCC
Any individual who makes a contribution for any annuity plan of the Life Insurance Corporation of India or any other insurer is eligible for a deduction of the amount paid or Rs. 10,000, whichever is less. When an individual or his nominee receives any amount under the following circumstances it will be taxed as the income of the individual or his nominee, in the year of withdrawal or the year in which the pension is received:

• On the surrender of the annuity plan or
• As pension received from the annuity plan. 

Section 80CCD
The deduction for contributions to a pension scheme of the Central Government is available only to those individual who have been employed by the central government on or after 1st January 2004, and will be allowed for any amount deposited in such a pension scheme. But, in this case, deduction of more than 10 per cent of the employee's salary shall not be allowed.

The contributions to the fund are also made by the Central Government. Deduction will be available for any contribution which is made by the Central Government or 10 per cent of the employee's salary, whichever is less.

When the individual or his nominee receives any amount out of the scheme which meets the following descriptions, it shall be taxed in the hands of the recipient.

• On closure/ opting out of the pension scheme; or
• As pension received from the annuity plan.

The term 'salary' here includes Dearness Allowance (if considered for retirement benefits), but it excludes other allowances and perquisites.

The aggregate deduction under the Sections 80C, 80CCC and 80CCD cannot exceed Rs 1 lakh as whole

Section 80D
Any Premium which is paid for medical insurance that has been taken on the health of the assessee, his spouse, dependent parents or dependent children, is allowed as a deduction, subject to a ceiling of Rs 10,000.

Where any premium is paid for medical insurance for a senior citizen, an enhanced deduction of Rs 15,000 is allowed. The deduction is available only if the premium is paid by cheque.

Section 80DD
Deduction under this section is available to an individual who:

• Incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependant; or
• Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. An annuity or a lump sum amount is paid to the dependant or to a nominee for the benefit of the dependant in the event of the death of the individual depositing the money, from the said scheme,

A deduction of Rs 50,000 is available. Where the depandant is with a severe disability, a deduction of Rs 1,00,000 is allowed. (As per AY 2009-10)

If the death of the dependant occurs before that of the assessee, the amount in the scheme is returned to the individual and is taxable in his hands in the year that it is received.

An individual should furnish a copy of the issued certificate by the medical board constituted either by the Central government or a state government in the prescribed form, along with the return of income of the year for which the deduction is claimed.

The term 'dependent' here refers to the spouse, children, parents and siblings of the assessee who are dependant on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes.

This deduction is also available to Hindu Undivided Families (HUF).

Section 80DDB
An individual, resident in India spending any amount for the medical treatment of specified diseases affecting him or his spouse, children, parents, brothers and sisters and who are dependant on him, will be eligible for a deduction of the amount actually spent or Rs 40,000, whichever is less.

Note:- For the complete list of disease specified, refer to Rule 11DD of the Income Tax Rules.

For any amount spent on the treatment of a dependent senior citizen an individual is eligible for a deduction of the amount spent or Rs 60,000, whichever is less is available.

The individual should furnish a certificate in Form 10-I with the return of income issued by a specialist working in a government hospital.

If any amount of medical expenditure is borne by the employer or is reimbursed under an insurance scheme, the eligibility of the deduction is the reduction to that extent. This deduction is also available to Hindu Undivided Families (HUF).

Section 80E
Under this section, deduction is available for payment of interest on a loan taken for higher education from any financial institution or an approved charitable institution. The loan should be taken for either pursuing a full-time graduate or post-graduate course in engineering, medicine or management, or a post-graduate course in applied science or pure science.

The deduction is available for the first year when the interest is paid and for the subsequent seven years. Up to March 2005, deduction was available for the repayment of principal and interest aggregating to Rs 40,000 a year.

Section 80U
It is deduction in the case of a person with a disability. An individual who is suffering from a permanent disability or mental retardation as specified in the persons with disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability it is Rs. 75,000.

The assessee should furnish a certificate from a medical board constituted by either the Central or the State Government, along with the return of income for the year for which the deduction is claimed.