Major changes has been made in calculation of house property income under direct tax code,2009.Like Income from employment (salary Income) major exemption has been removed under direct tax code .Moreover a new notional income concept has been introduced in the Income from house property. Main provisions of direct tax code relating to Income from House property are given below.
1.
Letting Business also Covered: Income from House property is covered /calculated under House property Head even the person is in business of letting.
2.
Property used for/in business: Like earlier provisions Income from property or portion of property which person occupies for his business is not covered under this chapter.
3.
Joint owner: Joint owner provisions remain as it is .Separate calculation for income shall be done to Person who has definite and ascertainable share in property for their respective shares.
4.
House property: “house property” means,-(a) any building or land appurtenant thereto; or (b) any building along with any machinery, plant, furniture or any other facility if the letting of such building is inseparable from the letting of the machinery, plant, furniture or facility. So as per new provision plant & machinery rent is also covered under house property where these facilities are inseparable. Earlier if rent agreements define the details of each portion then only building rent is covered under House property income.
5.
Gross Rent: The gross rent in respect of a property shall be the higher of the amount of contractual rent and presumptive rent, for the financial year.
6. The contractual rent : shall be the rent receivable by the assessee under a contract, whether in writing or otherwise.
7.
The presumptive rent: shall be six per cent. of
a. the ratable value fixed by any local authority in respect of the property; or
b. the cost of construction or acquisition of the property if no such value has been fixed by the local authority.
8.
Minimum Rent: So as per point 5-7 , Minimum gross rent shall be considered 6 % of the property value (cost) whether the actual rent received is less than this Figure.
9.
One House property :If a person own more than one house then value of any one house can be treated as Nil subject to that
a. No other benefit derives from that house
b. House or part of the house is not let out during the financial year.
10.
Deduction for repair & maintenance: 20 % of the Gross rent (earlier it was 30 %)
11.
Deduction for Local tax :The amount of taxes levied by a local authority in respect of the property if the amount is actually paid during the financial year;
12.
Deduction for Service Tax: the amount of tax on services paid to the Central Government in respect of rent, if the amount is actually paid during the financial year;
13.
Deduction for Interest on House property : on capital borrowed for the purposes of acquiring, constructing, repairing, renewing or reconstructing the property, or on capital borrowed for the purpose of repayment of the capital is unlimited in case of let out house or where presumptive rent is applicable.
14.
Self Occupied House property: In case of self occupied house or deemed to be self occupied house no deduction is available and its income can not be negative. This is major shift in policy as many person has taken a long term House property loans with a view to save tax but now all doors has been shut for such a tax planning.
15.
Interest on Pre construction period: No provisions for interest on Pre construction period interest .earlier it was available in five installments.
16.
Not ready for Use: The above provision will also not applicable on house property which is not ready to use during the financial year. What is meaning of “not ready for use” is not defined This clause can be misused where presumptive valuation is involved by keeping the House property as “ot ready for use”
Give your comment. These clause (Direct tax code is proposed to be applicable from 01.04.2011)
The presumptive or minimum rent is absolutely shocking, because
first of all 6% is not the return these days, so this is not correct;
secondly most of the old properties are with the tenants with negligible rents and/or in litigation in the courts for eviction. Since the rent laws are such that cases takes decades to decide, so the tenants are enjoying properties at peanut rates. In this scenario how can those owners pay such heavy tax if they are getting less than .5% of the value.
Third the income earned is the amount received under presumptive scheme, it should be kept bare minimum or actual which ever is higher, makes sense. Imagine a 10 crore property is rented out at 50,000/- per annum due to old tenancy is owned by Mr. X and a similar property owned by Mr. Y is rented out at 10 lacs per annum. So how can the presumptive scheme of 6% work. It will totally imbalanced rule under the code.
So, the actual rent should be considered as income under the House Property or new code can keep something like minimum .5% or actual, which ever is higher. This will work in those cases where the people are taking rents in cash. Otherwise there is no logic in presumptive tax. For local bodies it has not been challenged because the rate of tax is normally 2% or 3% but in income tax it is either not less than 20% in most of the cases or you can say 16% because of 20% deduction.
Regards
AJAY JAGGA, Advocate
Tax Consultant
Chandigarh
