Changes In Taxation Of Income From House Property

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The proposed Direct Tax Code contains many provisions that aim to change the mode of taxation of 'income from house property' . In order to simplify the determination of taxable income and eliminate any scope for litigation, the code will have a new scheme for computation of 'income from house property' .

According to the code, 'income from house property' will be computed in the hands of the owner. Even if the property is let out for business etc, it will be taxable only under the same head. Under the present provisions of the Income Tax Act, letting out an inseparable building along with plant and machinery is taxable under 'business income' or 'other sources' . However , according to the new code, it will be taxable under the head 'income from house property' . In case the property is owned by more than one owner and if the share of each company owner is definite and ascertainable, it will be computed separately for each co-owner . The property will not be taxable under this head of income if it is used for own business or profession, or if it is not ready for use.

The gross rent minus deductions specified in Section 26 will be the 'income from house property' . The computation of gross rent is outlined in Section 25 of the code. Gross rent is the higher of contractual rent and presumptive rent. If the property is acquired during the financial year, the presumptive rent will be also calculated on a proportionate basis. Either contractual rent or presumptive rent for the financial year, whichever is higher, will represent the gross rent. The concept of 'annual letting value' under the Income Tax Act has been given up. Contractual rent is the rent receivable under a contract. It can even be an oral contract. Presumptive rent will be six percent of the rateable value fixed by the municipality or the cost of construction/acquisition of the property, if the municipality does not fix the rateable value.

Section 26 provides for deduction from the gross rent. These include property taxes paid during the previous year, service tax on rent paid during the previous year, 20% of gross rent towards repair and maintenance, interest on capital borrowed for purchase /construction /repairs. In case of a self-occupied property, the gross rent will be taken as nil. The aggregate of deductions specified in Section 26 will be nil for such houses. The deduction of interest on capital borrowed which is currently available for a self-occupied property will not be available under the new code. In case an assessee has more than one house for self-occupation , the benefit of nil gross rent will apply only for one self-occupied house at the option of the assessee. The computation of remaining houses will be made as if the properties are let out.

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by: amitsinha0002

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