Before actually launching into an explantion of House Property income and its calculation let me make the legal disclaimer.
All statements made in this blog post are personal views and readers are requested to treat them as such. For advice on your tax returns please contact a qualified chartered accountant.
Let us begin by stating the seemingly obvious:
Calculation of tax on Income from House Property is governed by the provisions of the Income tax act 1961 as modified by the latest Finance Act relevant to the financial year.
Well, that is a mouthful. But is it really obvious? I am not sure it is obvious! There are several terms that are obscure! I have highlighted them below:
Calculation of tax on Income from House Property is governed by the provisions of the Income tax act 1961 as modified by the latest Finance Act relevant to the financial year.
Tax: The amount of tax payable on this type of income is defined in the Finance act relevant to the financial year.
Income: Income or notional income from house property referred to here is the net income and not the gross income.
Finance act: This is the act that is passed every year in the parliament modifying the Income tax act 1961 to take into account the changing economic realities.
Financial year: the year beginning on 1st April of one year and ending on 31st march of the following year.
House Property: Any building or building with land appertuenent thereto that is owned by a taxable entity and from which he derives an income or notional income. Such a building can be self occupied property, let out property, deemed to be let out property or partly let out property.
Exception:Income from house property can become business income under certain circumstances. If an assessee uses a house property he owns for business or profession, then the income generated by this house comes under the income from business and not under the head income form house property. The case may be different if the Direct Tax code is passed in toto.
Did that bring clarity? No. There are several new terms that need elucidation!
Notional Income: Income that may be derived had the property been let out. Currently, this is generally taken to be ‘Nil’ if the property is self occupied. It will have a value if the Direct tax code is implemented next year in toto.
Gross income: Total receipts by way of rent for use of property and amenities.
Net income: This is total receipts from house property minus any expenses that may be incurred by the owner by way of payment for repairs, taxes and other charges on the house property.
Building or building with land appertunent thereto: Land by itself is not defined as House property and there is no tax on income from land. However, if there is a building on the land and the building is let out or self occupied along with the land, then the total receipts from the property will be taxable under the head house property income as income from property.
Ownership: Income from house property is paid by the assessees’ who own house.
Ok, so we have the definitions and terms explained! What about an example of the calculation? Stay tuned in. Our next blog post will do just that!
