UNIT III

Income from House Property

Q1) What are the Ways to calculate income from home property?

A1) Here's how you calculate your income from a home property:

1. Determine the entire annual value of the property (GAV): the entire annual value of the self-occupied home is zero. For a let-out property, it is the rent collected for a rent home.
2. Reduce property tax: property tax, when paid, is allowed as a deduction from the Gav of property.
3. Determine internet annual value (NAV): net annual value=total annual value-property tax
4. Reduce the NAV 30%towards the quality deduction: 30% of the NAV is allowed as a deduction from the NAV under Section 24 of the tax Act. Other costs, like painting and repairs, can't be billed as tax breaks above the 30% cap under this section.
5. Reduce mortgage interest: deductions under Section 24 also are available for interest paid during the year of a useful mortgage.
6. Determine the income from the house property: the resulting value is your income from the house property. This is often taxed at a rate of slab applicable to you.
7. Loss from home property:when owning a self-occupied home, since there's no gav, claiming a mortgage interest deduction will end in a loss from the house property. During this case, the adjustment to the profit of others won't be.

Q2) Define Income tax on home property.

A2) Income tax on home property: on owning a home one day–everyone dreams of this, saves towards this and wants to achieve this one day. But it is not without responsibility to own the property of the House. Paying property taxes on the house every year is one of them. If you want to learn how to save taxes on mortgage interest, this guide is for you. It's also talking about how to report home ownership with your income tax return1. Basic knowledge of housing property tax

A home property could be land attached to a building such as Your Home, Office, shop, building or parking lot. The income tax law does not distinguish between commercial and residential real estate. All types of property are taxed under the head of “income from home property “on an income tax return. The owner for income tax purposes is a person who is its legal owner and can exercise the rights of the owner in his own right, and not on behalf of someone else.

If you use property for business or professional purposes, or to perform freelance work, it is taxed under the head of “income from business or profession". The cost of its repair and maintenance is allowed as business expenditure.

1. Self-employed residential property

Self-occupied house properties are used for their own residential purposes. It can be occupied by the taxpayer's family–parents and/or spouses and children. Vacant house property is considered as self-occupied for income tax purposes.

Until 2019-20, if the taxpayer owns more than one self-occupied property, only one will be considered self-occupied property, and the rest will be put out. The choice of property to choose as self-occupied is up to the taxpayer.

From 2019-20, the number of self-employed workers will increase to 2 per cent. Now the homeowner can claim his 2 properties as self-occupied and remaining homes to be put out for income tax purposes.

b. Let the property in the House

A home property that is rented for the whole or part of the year is considered to let the home property for income tax purposes

C.Inherited properties

Inherited property, that is, property bequeathed again from parents, grandparents, etc., can be self-occupied property or released based on its usage as described above.

Q3) When is the deduction limited to Rs30, 000?

A3) As already mentioned, if the development of the property isn't completed within 5 years, the deduction of interest on the mortgage should be limited to Rs. 30,000. The 5-year period is calculated from the top of the financial year during which the loan was taken. So if the loan was taken on 30th April 2015, construction on the property would need to be completed by 31st March 2021. (The period before the 2016-17 fiscal year was 3 years, but the budget increased to five years in 2016).

Note: the interest deduction can only be charged from the financial year when the development of the property is completed.

Q4) How do I claim a decrease for a loan taken before the development of the property is completed?

A4) Mortgage interest deductions can't be claimed when the home is under construction. It is often argued only after the top of construction. The amount from borrowing money to the completion of the development of the home is called the amount before construction.

The interest paid during this era is often claimed as a decrease in equal instalments ranging from the year the development of the property is completed. During this example, better understand the pre-construction interest.

Q5) Give an example of the big budget changes and impacts of 2017

A5) Here's an example of the big budget changes and impacts of 2017.

Until the 2016-17 fiscal years, losses under the main family property can be set off against other heads of income without any restrictions. However, in the 2017-18 financial years, it is limited to 2 million units. This amendment would not actually affect taxpayers with self-occupied house property. The move will affect taxpayers who are letting out/renting their property. There is no bar on the amount of interest on the mortgage, which can be claimed as a deduction under Section 24 for property in rental housing, but the losses that may arise for such interest payments can be set off only in the range of Rs2lakhs.

Here are some examples to help you understand the impact of the amendment:

Workings for Income from House Property

Q6) Define Capital assets.

A6) Capital asset is any property held by the assessor of income tax exceptJewellery, drawings, paintings. Items held for a person's business or profession (inventory, ready goods, raw materials) are taxed under the head of the interests and interests of the business or profession

Agricultural land means land on which agricultural income is obtained. Land that is outside the city,not the municipality, 8 kilometres, and whose population is less than 10,000, is eligible to be agricultural land.

Q7) What are the two types of capital assets?

A7) Two types are:

Short-term capital assets:this is an asset held for no more than 36 months immediately before the transfer date. This period of 36 months is replaced by 12 months in the case of certain assets such as shares held in the company or preferred shares, other security listed on the recognized stock exchange of India, certain stocks mutual funds and units of zero coupon bonds.

Long-term capital asset:this is an asset that is held for 36 or 12 months or more in some cases. A transfer is defined as the sale of an asset, the waiver of rights to the asset, the compulsory acquisition by law, or the maturity of the asset. Many transactions are not considered transfers, such as transferring capital assets under a will. If a unit of a stock or stock diversification mutual fund held for more than a year, it is subject to long-term capital gains. In the case of real estate, if it is held for more than two years, it is eligible for long-term capital gains. Earlier in the financial Act 2017, Real Estate was considered as a long-term capital asset only if it was held for more than three years.

Q8) Show the tax slab of Tax on Equity and Debt Mutual Funds.

A8)  Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.

Capital gains:

• The assessor must own capital assets
• The assessor must have transferred capital assets in the previous year.
• There must have been a profit or profit as a result of such a transfer

Q9) What kind of Tax liabilities are linked to fixed assets and not linked?

A9) For long-term capital gains, tax liability is lower than the amount arrived by two:

• 20% tax liability has arrived by the indexing act
• 10% tax liability arrived without using indexing method

In the above example, using indexing, the tax liability would be (20/100) x7, 20,000=Rs1, 44,000. Without indexing:capital gain=selling price of the asset-acquisition cost=60, 00,000-20, 00,000=Rs40, 00, 000. The capital gains tax on this is 10 per cent=(10/100) x40, 00,000=Rs4, 00, 000. This is an advantage to use indexation as it benefits in tax savings.

Q10) What are the exemption on the sale of home property under section 54?

A10) Section 54: exemption on the sale of home property within the purchase of other home property

• Exemption of capital gains under Section 54: however, capital gains on the sale of residential property shall not exceed Rs2crores, until the assessor has two House properties against the previous offer of one house property on the same terms.
• Exemptions under Section 54 are available when capital gains from the sale of residential property are reinvested in the purchase or construction of another residential property (prior to the 2019 budget, capital gains exemptions were limited to 1 residential property only).Exemptions for two-home properties are allowed once in a taxpayer's lifetime unless capital gains exceed Rs. Crowless 2-piece set taxpayers need to invest capital gains amounts rather than the entire sale proceeds. If the purchase price of the new property is higher than the amount of capital gains, the exemption shall be limited to the sum of capital gains at the time of sale.

Conditions for this benefit to be useful

1. The new property are often purchased either 1 year before the sale or
2. Years after the sale of the property.
3. Profit can also be invested in the construction of the property, but the construction must be completed within three years from the date of sale.
4. The 2014-15 budgets reveal that only 1 House can be bought or built from capital gains to claim this exemption.
5. Please note that if this new property is sold within 3 years of the completion of its purchase/construction, you can regain this exemption.

Q11) When can I invest in a Capital Gains Account Scheme?

A11) Finding a suitable seller, placing the necessary funds and getting documents in place for a new property is a time-consuming process. Fortunately, the Income Tax department agrees with these restrictions. If the capital gains are not invested until the filing date of return (usually 31July) for the fiscal year in which the property is sold, the profit is not required to pay taxes, the Capital Gains Account Scheme, 1988 this deposit can be claimed as an exemption from the capital gains. However, if the funds are not invested, the deposit shall be treated as a short-term capital gain for the years after the specified period has passed.