Income from House Property for CFP – 4

Deduction (Sec 24)

1. Standard Deduction = 30%, this deduction is allowed even if no expenditure is incurred
2. Interest on borrowed capital is allowable as deduction if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of property
3. Interest on borrowed capital is deductible on accrual basis
4. Interest on fresh loan, taken to pay the original loan raised for aforesaid purpose is also deductible

Deduction for	Amount
Self-occupied Property	1,50,000
Let out Property	No Ceiling

Note: If the capital is borrowed before 1-4-1999 the deduction is Rs.30,000

Illustration:

Paresh owns a let out house property the net annual value of which is Rs. 200000. The standard deduction under Sec. 24 that is available to Paresh in respect of the above income would work out to _______.

1. Rs. 20000
2. Nil
3. Rs. 40000
4. Rs. 60000

What will be the answer if the house is self occupied?

What is Pre-Construction Period? (Important)

1. Interest of pre-construction period is deductible in 5 equal installments
2. The first installment is deductible in the year in which construction of the property is completed or in which the property is acquired
3. Example: If the loan is taken on 1^st January 2006 and construction of the property completes in August 2010, preconstruction interest will be calculated for 4 years and 3 months

Illustration:

Manan borrowed Rs.20,00,000 @ 9% p.a. on 1/10/1998 for construction of a house property which was completed on 30/09/2003. The loan is still not repaid in full. What is the amount of deduction on account of pre-construction interest for AY 2004-05 that he can avail of Rs. ______

1. 1,62,000
2. 8,10,000
3. 30,000
4. 1,80,000

Self Occupied or Unoccupied HP:

1. NAV of a self occupied or unoccupied HP is taken to be Nil where,
2. HP is in the occupation of the owner for the purpose of his own residence
3. HP can not actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at other place and he has to reside at that other place in a building which does not belong to him

Illustration:

X owns a house property. It is used by him throughout the previous year 2010-11 for his (and his family members) residence. Municipal value of the property is Rs. 166000, whereas fair rent is Rs. 176000 and standard rent is Rs. 150000. The following expenses are incurred by X, repairs Rs. 20000, municipal tax Rs. 16000, insurance: Rs. 2000: interest on capital borrowed to construct the property: Rs. 136000 interest on capital borrowed by mortgaging the property for daughter’s marriage: Rs. 20000 (in either case capital is borrowed before April 1, 1999). Income of X from business is Rs. 710000. Find out the net income chargeable to tax of X for the AY 2011-12.

1. Rs. 642000
2. Rs. 524000
3. Rs. 544000
4. Rs. 680000

Illustration:

Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If Ram used the house for his own residential purpose the GAV of the house will be_______.

1. 145000
2. NIL
3. 180000
4. 131000

Deemed to be Let Out HP:

1. If the assessee owns more than one self-occupied HP, income from any one such property shall be computed as Self-occupied and others will be treated as deemed to be let out property
2.  This option can be changed by the assessee year on year basis to get the maximum benefit

Hints for Tax Planning:

1. Selection of self occupied property
2. Municipal tax is deductible on payment basis and not on due or accrual basis, hence care must be taken to claim deduction

This chapter comes to an end. All the best!

Income from House Property for CFP – 3

GAV when Vacancy Period and no Unrealized Rent:

Step 1 and 2 are same as we did earlier

GAV when Unrealized Rent and No Vacancy:

Unrealized rent shall be excluded from rent received if

Condition 1	The tenancy is bona fide
Condition 2	The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property
Condition 3	The defaulting tenant is not in occupation of any other property of the assessee
Condition 4	The assessee has taken all reasonable steps for the recovery of the rent

Step 1 and 2 are same

Step 3

GAV = Higher of AR (AR for the year-Unrealized Rent) or 2

Illustration:

Ram has a house property whose Municipal Valuation is Rs.140000 whereas the fair rent of the house is Rs.160000 and Standard Rent is Rs.145000. Rakesh has paid municipal taxes of Rs.14000. Based on the above data, answer the following: If the annual rent of property is Rs.180000 and Unrealized Rent is Rs.60000, the GAV is_____________.

1. 145000
2. 180000
3. 120000
4. 131000

GAV When there is Vacancy Period and Unrealized Rent

 Step 1 and 2 are same

Step-3

GAV higher of AR (AR for the period of let out – unrealized rent) or 2

If AR is less than 2, 2 – loss for vacancy