Income from House Property, Capital Gains and Other Sources - Head of the Income, Income Tax Laws | Income Tax Laws - B Com PDF Download

Income from house property

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".

      The annual value of any property you own is taxable under the head ‘income from house property’. While there are a few deductions available from this income, income from a property is not taxable under the head ‘income from house property’ in the following cases:

1. The property is used for one’s own business or profession.

2. The property is self-occupied.

3. It is income from a farmhouse.

4. It is the property income of a local authority.

5. It is the property income of a university or an educational institution.

6. It is the property income of a trade union.

7. It is property held for charitable or religious purposes.

8. It is the property income of a political party.

9. It is the property income of an approved scientific research association.

Annual value of the house property:

The annual value of house property has been defined as ‘the amount for which the property may reasonably be expected to be let out for a year’.

However, if your property is let out for the whole or a part of the financial year, the gross annual value will be the amount received during the year as a result of the letting out of the house property. This shall also exclude the rent that the taxpayer is unable to realize in the financial year.

The following four factors have to be taken into consideration while determining the annual value:

1. Rent payable by the tenant.

2. Municipal valuation of the property.

3. Fair rental value (market value of a similar property in the same area) of the property.

4. Standard rent payable under the Rent Control Act.

Gross Annual Value:

In the case of self-occupied property, the annual value is taken to be ‘nil’.

In the case of property that is rented out, the gross annual value is the municipal value, the ‘de facto rent’ (whether received or receivable) or the fair rental value, whichever is highest. If, however, the Rent Control Act applies to the property, the gross value cannot exceed the ‘de facto rent’ or the standard rent under the Rent Control Act, whichever is higher.

Capital Gains and Other Sources

Short- and long-term Capital Gains

A capital asset that is held for less than three years is deemed to be a short-term asset. If sold, it attracts tax at the normal rates. An asset that has been held for more than three years is deemed as long-term asset, and attracts tax at concessional rates when sold. The gains arising out of short- term assets are charged as Short-term Capital Gains and those gains arising from the long tem assets are charged under as Long-term Capital Gains. 

However, in the case of securities such as equity or preference shares, debentures, government issuing, and units of mutual funds and the Unit Trust of India (UTI), the assets are deemed short-term if they are held for less than a year. Conversely, these assets are deemed long-term if they are held for more than a year.

Income from other sources

Income of every kind, which is not chargeable to income tax under the heads salary, income from house property, profits and gains of business and profession, capital gains can be taxed under the head "income from other sources".

This is income that is not chargeable to tax under any other head of income. Such income includes-

a. Dividend

Under Section 10(33), any amount declared or paid by an Indian company by way of dividend is tax-exempt in the hands of shareholders. Therefore, any dividend income received from a company that is not an Indian company will be taxable in the hands of the recipient.

b. Winnings from lotteries, crossword puzzles, horse races and game shows

In the case of winnings from lotteries, crossword puzzles, races (including horse races), card games, game shows and other games of any sort, or from gambling or betting of any form or nature whatsoever, Rs. 10,000 is exempt from tax. Tax will be deducted at source on the rest of the winnings at the rate of 30 per cent (plus surcharge).

Winnings from game shows like Kaun Banega Crorepati will be covered by this clause from 1 June 2001. Winnings before this date will not be subject to TDS; you will have to pay tax yourself.

c. Interest on securities

The income from interest on securities is chargeable to tax if the securities are held as an investment, and not as stock-in-trade. If the securities are held as stock-in-trade, the interest income is taxable under the head ‘profits and gains from business or profession’.

d. Others

1. The interest on bank deposits and loans (except in the case of assessees in the money-lending business).

2. Income from letting-out machinery, plant, furniture or buildings on hire if they are not chargeable to tax under the head ‘profits and gains from business or profession’.

3. Interest received on a tax refund

4. Ground rent

5. Royalty

6. Director’s fees from a company.