Explain the term income from house property and how you will compute the rent of the house property also explain the deductions allowed in the income tax law
INCOME FROM HOUSE PROPERTY :-
Under the head of income from property rent is the second important source of income. The rent received or receivable is chargeable to tax.
The amount received or receivable by the owner of land or building for its use. The amount of rent shall not be less than the fair market rent.
It means plot used for storing materials or temporary huts.
It is made of stone or bricks which is covered by roof.
Any land or building which is constructed is called property.
FAIR MARKET RENT :-
It is the amount of rent which is determined on the basis of a rent fetched by similar property in the similar locality.
Procedure For Computing The Rent :-
I) Any amount which owned of the land or building receives or is receivable for its use or right to use is called rent.
II) Under the contract of sale for land or building forfeited deposit is also included in the rent.
III) Any advance which is received by the owner from tenant, its 1/10 is taken as rent.
IV) Any obligation of the owner like property tax paid by the tenant is also taken as rent.
Following are not included in the head of “income from property”.
a) Income from vacant plot.
b) If plant and machinery is in the building then rented income will be not included in the income from property.c) If tenant sublets the land or building then such rented income is not included in this head.
d) If owner of property receives amount regarding the utilities provided are not taxable in this head.
While calculating the income under above head following deductions and allowances are allowed :
1. Local Taxes :-
The amount of taxes paid to any local authority of govt. are also deduct able from the income of the property owner.
2. Repairing Expenses :-
If property is given on rent and the owner of the building bears the repair charges. AS a repair allowance one fifth of the annual letting value can be deducted as a repair charges. This amount is fixed whether actual expenses are more or less.
3. Interest On Loan :-
If any person borrows the capital and purchases or constructs or repairs the building. The amount of interest paid such on capital can be deducted.
4. Interest On Mortgage :-
The amount of interest paid on the property which is mortgage or under any other capital charge is allowable deduction.
5. Ground Rent :-
If the property is subject to ground rent only then the amount of rent paid is allowable deduction.
6. Insurance Premium :-
If the property is insured against the rise of damage or destruction the amount paid as a premium to insurance company is deductible.
7. Vacancy Allowance :-
For some period if property remains vacant the value of that particular period can be deducted as vacancy allowance.
8. Collection Charges :-
A landlord spends some money in collecting the rent from the tenant such expenditure or 6% of annual value after deducting the other allowances which ever is less is deductible.
9. Rent Unrecovered :-
If the owner of the house has failed to recover the rent from the tenant then it is deductible in the following cases.
a) It is necessary that tenancy must be real.
b) The defaulter has vacated the property.c) The owner has taken steps to compel the tenant to vacate the property.
d) Such defaulter has not occupied any other property of the assessee.
e) For the recovery of unpaid rent, owner has taken all the steps for legal proceedings.
10. Rent Share
If any scheduled bank has contributed the capital for the construction or purchase of any property then the amount of any share of rental income paid to such institution is also deductible.
11. Legal Expenses :-
Expenses paid or payable by a person in the tax year for legal services to defined the property or any suit in the court can be deducted from the rent chargeable to tax.