Some rules that specify when a tax deduction is available
Property is an important source of income. In case you own a residential property, it may either be self-occupied or rented out. If you rent out the residential property, a rental income is derived. Leasing out property and renting out property mean the same. The rental income earned is taxable in the hands of the recipient. It is taxable under the head 'Income from House Property'.
The tax liability is calculated according to the provisions of Sections 22 to 27, after allowing for the admissible deductions. No deductions are allowed except those specified by the Income Tax Act.
In case you have rented out your commercial property, the income earned from this source is also be taxable. It is taxable under the head 'Income from Business and Profession'. The lease rent earned through leasing out commercial property constitutes business income for the owner of the property. As such, it is taxed as business income.
The deductions allowed on business income are applicable here too. The expenses should pertain to earning the income from the commercial property.
In addition to the regular income from rent, you can also earn an income through capital appreciation. The owner may transfer or dispose off a residential property. In case the price realised is greater than the cost of the house, you earn a capital gain. This is taxable under the head 'Capital Gains'. In case the amount realised is reinvested in property or some specified securities, no amount is taxable.
What is taxed under the head 'House Property' is the inherent capacity of a property to earn an income called the 'annual value' of the property. This is taxed in the hands of the owner of the property. Gross annual value is the highest of rent received, fair market value or municipal valuation. If however, if the Rent Control Act is applicable, the gross annual value is the standard rent or rent received, whichever is higher.
In case the let-out property was vacant for any part of the previous year and owning to such vacancy the actual rent received is lesser than the sums mentioned, the amount actually received is taken into account while computing the gross annual value. Net value is the gross annual value less the municipal taxes paid by the owner, provided the taxes were paid during the year. Annual value is the net value less the deductions available under Section 24.
Deductions under Section 24
The Act specifies deductions that are exhaustive in nature. No deductions other than these are available.
They include:
It is specified that 30 percent of the annual value of the property as computed is eligible for deduction.
Interest on money borrowed for acquisition, construction, or renovation of property is deductible on accrual basis. Interest paid during the pre-construction or acquisition period will be allowed in five successive financial years starting with the financial year in which construction or acquisition is completed. This deduction is also available for a self-occupied property and can be claimed up to a maximum of Rs 30,000.
The Finance Act, 2001 had provided that effective the annual year 2002-03, the amount of deduction available under this clause is Rs 1.5 lakhs in case the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2003.
The Finance Act 2002 has removed the requirement of acquisition or construction being completed before April 1, 2003 and has simply provided that the acquisition or construction of the property must be completed within three years from the end of the financial year in which the capital was borrowed
Property is an important source of income. In case you own a residential property, it may either be self-occupied or rented out. If you rent out the residential property, a rental income is derived. Leasing out property and renting out property mean the same. The rental income earned is taxable in the hands of the recipient. It is taxable under the head 'Income from House Property'.
The tax liability is calculated according to the provisions of Sections 22 to 27, after allowing for the admissible deductions. No deductions are allowed except those specified by the Income Tax Act.
In case you have rented out your commercial property, the income earned from this source is also be taxable. It is taxable under the head 'Income from Business and Profession'. The lease rent earned through leasing out commercial property constitutes business income for the owner of the property. As such, it is taxed as business income.
The deductions allowed on business income are applicable here too. The expenses should pertain to earning the income from the commercial property.
In addition to the regular income from rent, you can also earn an income through capital appreciation. The owner may transfer or dispose off a residential property. In case the price realised is greater than the cost of the house, you earn a capital gain. This is taxable under the head 'Capital Gains'. In case the amount realised is reinvested in property or some specified securities, no amount is taxable.
What is taxed under the head 'House Property' is the inherent capacity of a property to earn an income called the 'annual value' of the property. This is taxed in the hands of the owner of the property. Gross annual value is the highest of rent received, fair market value or municipal valuation. If however, if the Rent Control Act is applicable, the gross annual value is the standard rent or rent received, whichever is higher.
In case the let-out property was vacant for any part of the previous year and owning to such vacancy the actual rent received is lesser than the sums mentioned, the amount actually received is taken into account while computing the gross annual value. Net value is the gross annual value less the municipal taxes paid by the owner, provided the taxes were paid during the year. Annual value is the net value less the deductions available under Section 24.
Deductions under Section 24
The Act specifies deductions that are exhaustive in nature. No deductions other than these are available.
They include:
- Percentage of annual value
It is specified that 30 percent of the annual value of the property as computed is eligible for deduction.
- Interest on loan
Interest on money borrowed for acquisition, construction, or renovation of property is deductible on accrual basis. Interest paid during the pre-construction or acquisition period will be allowed in five successive financial years starting with the financial year in which construction or acquisition is completed. This deduction is also available for a self-occupied property and can be claimed up to a maximum of Rs 30,000.
The Finance Act, 2001 had provided that effective the annual year 2002-03, the amount of deduction available under this clause is Rs 1.5 lakhs in case the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2003.
The Finance Act 2002 has removed the requirement of acquisition or construction being completed before April 1, 2003 and has simply provided that the acquisition or construction of the property must be completed within three years from the end of the financial year in which the capital was borrowed
