Unit 2

Heads of Income

Q1) What is income from house property? How annual value of house is determined?    10

A1) The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ―income from house property.

Annual value how determined (section 23)

(1) For the purposes of section 22, the annual value of any property shall be deemed to be—

(a) the sum for which the property might reasonably be expected to let from year to year; or

(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable:

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

(2) Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if—

(a) the house or part of the house is actually let during the whole or any part of the previous year; or

(b) any other benefit therefrom is derived by the owner.

(4) Where the property referred to in sub-section (2) consists of more than one house—

(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;

(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.

Q2) What are the deductions available under income from house property? How income of house property is determined?             8

A2) Income chargeable under the head ―Income from house property‖ shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty per cent. Of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees:

Amounts not deductible from income from house property (Section 25)

Interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head ―Income from house property.

How to calculate Income from House Property for income tax purposes?

The income tax categorises your income under two categories for the purpose of taxability of house property income. These are:

Q3) Write a note on assessment of value of self-occupied and let out house.     5

A3) Assessment of Gross Annual Value of Self-Occupied House Property:

The annual value will be nil if the individual self-occupies the only property he or she owns. However, if the person has multiple properties with the purpose of self-occupation, only one property is considered as self-occupied and its annual value can be specified as nil. The assessment of the annual value of the remaining properties will be done according to the expected rent if the property was let out.

Assessment of Gross Annual Value of Let-Out House Property:

Step 1: Find out the Reasonable Expected Rent of the Property (A)

Reasonable Expected Rent is the amount for which the property can be reasonably be expected to be let out from year to year. It is higher of the Municipal Valuation or Fair Rent of the property, but cannot exceed the standard rent determined as per the Rent Control Act. Reasonable Expected Rent = Higher of Municipal Valuation or Fair Rent, subject to maximum Standard Rent

Step 2: Find out the Actual Rent Received or Receivable (B)

Step 3: Higher of (A) or (B), is the Gross Annual Value.

Q4) What is income from house property? Shoe the specimen of income from house property.            5

A4) The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ―income from house property.

Specimen of income from house property

Q5) Define salary and its types as provided under the Income Tax Act 1961.   5

A5) Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier. Hence, taxable salary includes:

• Advance salary (on ‘receipt’ basis)

Salary paid in advance is taxable under the head ‘Salaries’ in the year of receipt.

• Outstanding salary (on ‘due’ basis)

Salary falling due is taxable under the head ‘Salaries’ in the year in which it falls due.

• Arrear salary

Any increment in salary with retrospective effect which have not been taxed in the past, such arrears will be taxed in the year in which it is allowed. Arrear salary are taxable on receipt basis

In case Salary is received after deduction of following items... These are added back to get fully Salary:

(i)   Own Contribution to Provident Fund.

(ii)  Tax Deducted at Source (TDS)

(iii)  Repayment of Loan etc.

(iv)  LIC Premium, if deducted from salary.

(v)   Group Insurance Scheme.

(vi)  Rent of House provided by employer.

Salary U/s 17(1):

1.Wages. Fully Taxable.

2.Annuity or Pension. Fully Taxable

3.Gratuity. It has been treated separately.

4. (a) Any Fees -- Fully Taxable

(b)  Commission -- Fully Taxable

(c)  Bonus -- Fully Taxable

(d)  Perquisites -- (Perks) These are treated separately u/s 17(2)

(e) Profit in lieu of Salary -- These are treated separately u/s17(3)

5.Salary in lieu of Leave / Leave Encashment. Fully Taxable.

6.Advance Salary. Fully Taxable

7.Arrears of Salary. Fully Taxable.

8.Refund of Provident Fund (PF)

(a)  If SPF -- Fully exempted

(b)  If RPF -- Fully exempted if service is more than 5 years.

(c)  If URPF -- Taxable portion is added in salary income. Taxable portion is equal to employer’s contribution + interest on this part. Interest on own contribution to URPF is taxable under the head “ Income from Other Sources.”

Q6) State about the provisions related to allowances under the head salary under the Income Tax Act.                      8

A6)

A. Fully Exempted Allowances:

Foreign Allowance given by Govt. To its employees posted abroad. HRA given to Judges of High Court & Supreme Court.

B. Fully Taxable Allowances:

(i)    Dearness Allowance / Additional D.A. / High Cost of Living Allowance -- Fully Taxable.

(ii)   City Compensation Allowances (CCA).

(iii)   Capital Compensatory Allowance

(iv)  Lunch Allowance

(v)   Tiffin Allowance

(vi)  Marriage / Family Allowance

(vii)  Overtime Allowance

(viii) Fixed Medical Allowance.

(ix)  Electricity and Water Allowance

(x)   Entertainment Allowance. It is fully added in employee’s Salary. 

In case of Government employees a deduction is allowed u/s 16(ii) at the rate of least of following :

(a)  Statutory Limit Rs. 5,000 p.a.

(b)  1/5 (20%) th of Basic Salary ; or

(c)  Actual Entertainment Allowance received.

Partly Taxable Allowances:

1.    House Rent Allowance ( HRA)

(a) Fully Exempted, if received by the Judges of High Court and Supreme Court.

(b) Fully Taxable, if received by an employee who is living in his own house or in a house for which no rent is paid.

(c)  Exempted upto least of following for those employees who are living in rented houses:

(i)   Actual HRA received by the employee.

(ii)  Rent paid - 10% of Salary ; or

(iii) 40% of Salary in ordinary town  ; 50% of Salary in Mumbai, Kolkata, Chennai or Delhi.

      Taxable HRA = HRA Received - Least of Above.

      Salary = Pay + D.A. Which enters into Pay for Service or Retirement Benefits + Commission on Turnover Achieved by Him.

Following Allowances are Exempted upto actual expenditure incurred for employment. Excess, if any, shall be taxable...

2.    Uniform Allowance

3.    Conveyance Allowance

4.    Traveling Allowance

Following Allowance are Exempted up to amount so notified.

5.    Special Compensatory Allowance

6.    Border Area Allowance

7.    Tribal Area Allowance -- Exempted upto Rs. 200 p.m. If received in the States of M.P., Tamil Nadu, U.P., Karnataka, Tripura, Assam, West Bengal, Bihar, or Orissa.

8.    Children’s Education Allowance -- Exempted up to Rs.100 p.m. Per child for education in India of own two children only.

9.  Hostel Expenditure Allowance -- Exempted up to Rs. 300 p.m. Per child for Hostel  expenditure on own  two children only.

Q7) Highlight the provisions related to perquisites under the head salary of the Income Tax Act.                  10

A7) A. Exempted Perquisites:

1.    Leave Travel Concession subject to conditions & actual spent only for travels.

2.    Computer/ Laptop provided for official / personal use.

3.    Initial Fees paid for corporate membership of a club.

4.    Refreshment provided by the Employer during working hours in office premises.

5.    Payment of annual premium on Personal Accident Policy.

6.    Subscription to periodicals and journal required for discharge of work.

7.    Provision of Medical Facilities.

8.    Gift not exceeding Rs. 5,000 p.a.

9.    Use of Health Club, Sports facility.

10.  Free telephones whether fixed or mobile phones.

11.  Interest Free / concessional loan of an amount not exceeding Rs.20,000 (limit not application in the case of medical  treatment)

12.  Contribution to recognised Provident Fund / approved super annuation fund, pension or deferred annuity scheme & staff group insurance scheme.

13.  Free meal provided during working hours or through paid non transferable vouchers not exceeding Rs. 50 per meal or free meal provided during working hours in a remote area.

The value of any benefit provided free or at a concessional rate (including goods sold at concessional rate) by a company to the Employees by way of allotment of shares etc., under the Employees stock option plan as per Central Government Guidelines.

B. Taxable Perquisites:

1.   Rent Free Accommodation

2.   Provision of Motor Car or any other Conveyance for personal use of Employee.

3.   Provision of Free or Concessional Education Facilities.

4.   Reimbursement of Medical Expenditure.

5.   Expenditure on Foreign Travel and stay during medical expenditure.

6.   Supply of Gas, Electricity & Water.

7.   Sale of an Asset to the Employee at concessioanal price including sale of Share in the Employer Company

.

C.        Perks Exempted for Employees but Taxable for Employer under Fringe Benefit Tax.

Value of the following benefits is not taxable in the hands of an employee. The employer has to pay tax on deemed income calculated as percentage of expenditure incurred.

1. Any free or concessional ticket provided by the employer for private journeys of his employee or their family members
2. Any contribution by the employer to an approved superannuation fund for employees;
   • Expenditure incurred on entertainment;
   • Expenditure incurred on provision of hospitality of every kind by the employer to any person.
   • Expenditure incurred on conference like conveyance, tour & travel (including foreign travel), on hotel, or boarding and lodging in connection with any conference shall be deemed to be expenditure incurred for the purposes of conference.
   • Expenditure incurred on sales promotions including publicity;
   • Expenditure incurred on employee’s welfare;
   • Expenditure incurred on conveyance
   • Expenditure incurred on Hotel, Boarding & Lodging facilities ;
   • Expenditure incurred on Repair, Maintenance of Motor Cars and the amount of Depreciation there on.
   • Expenditure incurred on use of telephone and Mobile Phones.
   • Expenditure incurred on maintenance of any accommodation in the nature of Guest House other than used for Training purpose.
   • Expenditure incurred on Festival Celebrations.
   • Expenditure incurred on use of Health Club and similar facilities.
   • Expenditure incurred on gifts;

Fringe Benefit Tax (FBT) is not applicable in case of following type of employers.

• An Individual or a sole Proprietor
• A Hindu Undivided Family
• Government
• A Political Party
• A person whose income is exempt u/s 10(23c)
• A Charitable Institution registered u/s 12AA.
• RBI
• SEBI

Q8) State the provisions related to profit in lieu of salary under the income tax act.               8

A8) Receipts which are included under the head ‘Salary’ but Exempted u/s 10.

1.   Leave Travel Concession (LTC) - Exempt upto rules.

2.   Any Foreign Allowance or perks - If given by Govt. To its employees posted abroad are fully exempted.

3.   Gratuity:  A Govt. Employee or semi-Govt. Employee where Govt. Rules are applicable -- Fully Exempted.

A.  For employees covered under Payment of Gratuity Act.--

Exempt up to least of  following:

(a)  Notified limit = Rs. 10,00,000

(b)  15 days Average Salary for every one completed year of
service (period exceeding 6 months =1 year)

1/2 month’s salary = (Average monthly salary or wages x 15/26

(c)  Actual amount received.

B.  Other Employees -- Exempted up to least of following provided service is more than 5 years or employee has not left service of his own:

(a)  Notified limit = Rs. 10,00,000

(b)  1/2 month’s average salary for every one year of completed service (months to be ignored.)

(c)  Actual amount received

Average Salary = Salary for 10 months preceding the month of retirement divided by 10.

4. Commutation of Pension:

In case commuted value of pension is received --

(a) If Govt. Employee -- is Fully Exempted.

(b) If other employee who receive gratuity also -Lump sum amount is exempted upto commuted value of 1/3rd of Pension.

If other employee who does not get gratuity -- Lump sum amount is exempted upto commuted value of 1/2 of pension.

5. Leave Encashment u/s 10(10AA)

(a)  If received at the time of retirement by a Govt. Employee---Fully Exempted

(b) If received during service---Fully taxable for all employees

(c) If received by a private sector employee at the time of retirement exempted upto:

(i)  Notified limit Rs. 3,00,000

(ii)  Average salary x 10 months

(iii) Actual amount received.

(iv) Average Salary x No. Of months leave due.

6. Any Tax on perks paid by employer. It is fully Exempted.

7. Any payment received out of SPF. Any payment received out of SPF is Fully Exempted.

8. Any payment received out of RPF. Any payment received out of RPF is Fully Exempted, If service exceeds 5 years.

9. Any payment received out of an approved superannuation fund. is Fully Exempted

Q9) State the deduction of section 16 and section 80C of the income tax act. 5

A9) Deduction Out of Gross Salary [ Sec. 16]

1.         Entertainment Allowance [ U/s 16(ii)]

Deduction u/s 16(ii) admission to govt. Employee shall be an amount equal to least of following:

1. Statutory Limit of Rs.5,000 p.a.
2. 1/5 th of Basic Salary
3. Actual amount of entertainment allowance received during the previous year.

2.         Tax on Employment u/s 16(iii

In case any amount of professional tax is paid by the employee or by his employer on his behalf it is fully allowed as deduction.

Deduction U/S 80C Out of Gross Total Income (GTI)

The following are the main provisions of the newly inserted Section 80C.:

1. Under Section 80C, deduction would be available from Gross Total Income.
2. Deduction under section 80C is available only to individual or HUF.
3. Deduction is available on the basis of specified qualifying investments / contributions / deposits / payments made by the taxpayer during the previous year.
4. The maximum amount deduction under section 80C, 80CCC, and 80CCD can not exceed  Rs.1 lakh.

Deduction u/s 80C shall be allowed only to the following assessee:

1. An Individual
2. A Hindu Undivided Family (HUF)

Q10) State the taxable perquisites under the income tax act.   2

A10) Taxable Perquisites are-

1.   Rent Free Accommodation

2.   Provision of Motor Car or any other Conveyance for personal use of Employee.

3.   Provision of Free or Concessional Education Facilities.

4.   Reimbursement of Medical Expenditure.

5.   Expenditure on Foreign Travel and stay during medical expenditure.

6.   Supply of Gas, Electricity & Water.

7.   Sale of an Asset to the Employee at concessioanal price including sale of Share in the Employer Company.

Q11) Mr. Ashok is the owner of a house (not covered under Went Control Act) which is let our at Rs. 1,500 per monthly. Municipal taxes of the house are Rs. 1,200 (being 10% of the municipal value) out of which Rs. 700 are paid by the tenant. The reasonable rent is Rs. 10,000 per annum. What will be annual value of the house?                                                           5

A11) Annual value is the highest of the following three less taxes borne by the owner:                                                                                                                                  

Rs.

i)                   Actual rent (1500 x 12)                                                                                    18,000

Ii)                 Municipal value 100 (1200 x 100/10)                                                           12,000

Iii)              Reasonable, rent                                                                                              10,000

Annual value Rs. Actual rent                                               18,000

Less municipal taxes borne by the owner (1200-700)   500

17500

Q12) Mr. X is the owner of two houses (covered under the Rent Control Act) which are let at Rs. 1,000 p.m. And Rs. 1,500 p.m. Municipal taxes on these houses are paid by the owner which amount to Rs. 800 and Rs. 1,000 respectively (being 10% of municipal valuation. The Standard Rents fixed under the Rent Control Act are Rs. 14,000 and Rs. 16,000 per annual respectively. What will be their Annual Value?                                                                        5

A12) Gross annual value is the highest of the following;

Rent received                                                                   12,000                             18,000

Standard rent                                                                     14,000                             16,000

Gross annual value of the first house will Rs. 14,000 and oi the second house it will below   Rs.18,000.

Annual Value will be                                       First House(Rs)          Second House(Rs)

Gross annual value                                                         14,000                             18,000

Less Municipal taxes borne by the owner                    800                                  1,000

13,200                             17,000

Thus annual value of first house is Rs. 13,200 and that of second house is Rs. 17,000.

Q13) From the following particulars compute the adjusted annual value of a house property for the assessment year 2020-21

1) Date of commencement of construction 10th July, 2017.

2) Date of completion of construction 1st May, 2017

3) Let out for the residential purpose on 1st June, 2017 at the rate of Rs, 600 per month.

4) Municipal value of the property Rs. 6,000.

5) Annual municipal taxes paid Rs. 400.                                                       5

A13)                                                                                                                

Gross annual value                                                                                      7200

(Municipal value or actual rent, whichever is more)

Less municipal taxes Annual value Less statutory deduction

Adjusted or net annual value                                                                        400

Annual                                                                                                     6800

Less: Adjusted or net annual value                                                   3600

3200

Hence, proportionate annual value for 10'months will be

10x3200/12 = Rs. 2,667.

Q14) From the following information of Mr. A, compute the adjusted annual value of the let out period of the house for the Assessment Year 2020-21.

Municipal value       Rs. 20000

Municipal tax paid Rs. .4,000

House was self-occupied for first six months and for the remaining six months it was. Let out at the rate of Rs. 2,000 p.m.                                                 5

A14) Gross annual value is highest of the following:

Municipal value                                                           20000

Actual rent (2,000 x 12)                                              24000

Gross annual value                                                      24000

Less municipal taxes                                                     4000

Annual value                                                                  20000

Less 112 of the annual value

For self-occupied period                                              10000

Adjusted annual value for let out period                 10000

Q15) From the following information of Mr. A, compute the adjusted annual value of the letout portion of the house for the Assessment Year 2020-21. Municipal value Municipal tax paid Rs. 30,000 Rs. 6,000.

House is self-occupied but is 114 of the house is let out @ Rs. 700 p.m. From 1.1.20                                                                                              5

A15) Calculation of Adjusted Annual Value:

Gross annual value                                                                                     33600

Municipal value                                                      30,000

Actual Rent (700 X 4 X 12)                                    33,600

Less municipal taxes                                                                                    6000

Less 314 of the annual value for self-occupied

Portion for full year                                                                                     20700

Annual value of 1/4 of the house for full year                                          6900

Less 3/4 (ie.9/2 of 6,900 for self-occupied portion of the house

For nine months                                                                                              5,175

Part of the house is let out for 3 months                                                    1,725

Adjusted annual value of part of the

House for part of the previous year

Q16) Mr. X owns a house at Kanpur (Municipal value Rs. 20,000) of the fair rent of Rs. 24,000 p.a. During the previous year 2019-20 the house is used by him for his own residence from 1st April 2019 to 30th June 2019 and let out for residential purposes on 1st July 2019 @ Rs. 2,500 p.m. I-Ie makes the following expenditure in respect of the house property. Municipal taxes Rs. 6,000, Repairs Rs. 2,000, Fire Insurance Premium Rs. 3,500, and revenue, Rs. 4,000 and Ground Rent Rs. 2,000 were paid during the year. A loan of Rs. 30,000 was taken on 1st April 2016 @ 15% p.a. For the construction of the house which was completed on 1st April 2019. Nothing was repaid on loan account so far. Find out his taxable income from house property for the Assessment Year 2020-21.                           5

A16)                                                                                                                

Fair rent being based on actual rent (Rs. 2,500 x 12)                      30000

Less Municipal Taxes                                                                                6000

Annual value                                                                                              24000

Less annual value for self-occupied period                                          6000

(114 of 24,000)

Net annual value                                                                                        18000

Less statutory deduction for 9 months                                                     2700

Net Adjusted annual value                                                                      15300

Less: Deductions

116th for Repairs                                                        2,550

Fire Insurance Premium                                           3,500

Land Revenue                                                             4,000

Ground Rent                                                                2,000

Interest on Loan for P .Y. 2019-20             4,500

Add: 115th of interest on loan paid for P.Y.

Prior to construction, i.e. Rs. 4,500

Per year for 3 years, i.e. 1/5th of 13500    2700       7200

19250                   

Amount deductible cannot exceed Rs. 15,300 u/s 24(3)                   15,300

Taxable Income from House Property                                                         Nil

Q17) Assume in Q16 that:

a) three-fourth portion of the house is self-occupied for full year; and

b) one-fourth portion of the house is let out for residential purposes from 1st April 2019 to 31st December 2019 on a rent of Rs. 700 p.m. And from 1st January 2990 it was again used for his own residence.

Find out his taxable income from Rouse Property for the Assessment Year 2020-21.                                                                                                                                  5

A17

Fair rent being based on actual rent (700x4x12)                                       33,600

Less municipal taxes                                                                                          6,000

Less annual value of 314 portion which is self-occupied                          20,700

Annual value of 114 portion                                                                              6,900

Less annual value for 3 months during which 114 portion                          1725

Is self-occupied

Annual value of 114 portion let out for 9 months                                           5175

Less statutory deduction @ Rs. 3,600 p.a. For 9 months                               2700

Net adjusted annual value uls 23(2)(a)(ii)                                                       2475

Less Deductions:

116th for Repairs                                                                                                   412

Fire Insurance Premium                                                                                    3,500

Land Revenue                                                                                                      4,000

Ground Rent                                                                                                         2,000

Interest on loan as determined in the preceding illustration                   7200

Amount deductible not to exceed Rs. 2,475 uls 24(3) ..............             2,475

Income from House Property ................                                                         Nil

Q18) Mr. Ramesh owns a house, whose municipal valuation is Rs. 10,000 p.a. The house is let out at a monthly rent of Rs. 8,200 p.a. To Suresh who undertakes the cost of repairs. Local taxes of Rs. 600 are paid by Mr. Ramesh. Compute the income from house property.                                                  5

A18)                                                                                                           

Gross annual value                                                                              10,000

Municipal value                           Rs. 10,000

Actual rent                                        RS. 8,200

(whichever is higher)

Less municipal taxes                                                                              600

Annual value                                                                                           9400

Less allowance for repairs, least of the following two

i)                   1/6th of Rs. 9600                         1600

Ii)                 Annual value                 9600

Less actual rent paid   8200      1400                                     1400

Iii)              Income fom house property                                                   8000

2) Insurance Premium

Any insurance premium paid on house property against the risk of damage or destruction through any cause, e.g., fire, earthquake, lightening and so on. It is only the actual premium paid that can be claimed as deduction.

3) Annual Charge

If there is an annual charge on the property it is an allowable deduction; but such charge should be legally enforceable and should neither be created, by the assessee voluntarily nox it should be in the nature of capital charge. Thus a revenue annual charge is allowable as deduction only if it has not been created by the assessee voluntarily. It does not include any tax in respect of the property.

4) Ground Rent

The owner of a building -may. Be lessee of the land on which the building is erected. Any ground rent payable in respect of the lease of that land is allowable as a deduction on accrGa1 basis. NO deduction is allowed for interest on enhanced ground rent but any additional ground rent paid to regularise the unauthorised, use of building is allowed.

5) Interest on Loan Taken in Respect of House Property

Interest on loan taken for the purpose of purchasing, constructing, reconstructing or repairing the house property is allowable as a deduction on accrual basis. It is not necessary, for the purpose, that the loan act borrowed or the interest payable thereon is secured by a charge on property.

Q19) Interest on loan of Rs. 40,000 taken on 1.4.2016 at the rate af 10% pa. To construct a house is Rs. 4,000 for the previous year 2019-20, when the construction of the house was completed. Interest for the preceding three years was also paid but not claimed as deduction.

Compute for the assessment year 2019-20 the amount of interest deductible in computing the income from house property if the house is (i) let out, and (ii) self-occupied.                                                                                                    5

A19)                                                                                                  

Interest for P.Y. 2019-20                                                               4,000

Interest for three years

Prior to the current previous year

(during which the construction

Of the house is completed)   Rs. 12,000

Deductible In five equal instalments                                           2,400                  6400

Ii) If the house is self-occupied the

Deduction shall be allowed to the extent of Rs. 5,000 only.

6) Land Revenue and Property Tax

Any sum paid on account of land revenue or any other tax levied by the State ' Government in respect of the property is deductible.

7) Collection Charges

Any sum spent to collect the rent from the property, not exceeding 6% of adjusted annual value of the property, is allowed as deduction. It includes (i) legal expenses incurred to collect the rent, (ii) salary paid to an employee to collect the rent, (iii) conveyance charges incurred to collect the rent, (iv) postal charges incurred to collect the rent, (v) bank commission to collect the rent.

8) Vacancy Allowance

When the property is let and remains vacant during a part of the year, the part of the adjusted annual value which is proportionate to the period during which the property is wholly unoccupied will be deducted as 'vacancy allowance'. Where the property is let out in parts, and any part of it remains vacant for a part of the previous year, that portion of the adjusted annual value appropriate of any vacant part, which is proportionate to the period during which such part remains vacant will be deducted as 'Vacancy Allowance'. Where the property remains vacant for full year, no vacancy allowance will be available.

Q20) Determine the Annual Value of house of Mr. Parmod for the A.Y. 2020-21

Municipal value Rs. 70,000

House let-out @ Rs. 8,000 p.m

Municipal tax paid by landlord Rs. 7,000 (10% of M.V.)

Fair rent Rs. 80,000

House remained vacant for 2 months                                             5

A20)

Computation of A.V. Of house of Mr. Parmod for the A.Y. 2020-21

Actual rent for 10-months                                   80,000

M. Value                                                                  70,000

Fair rent                                                                 80,000

Gross annual value                                                                               80,000

Less: Municipal tax paid                                                                         7,000

Annual value                                                                                            73,000