Type of Properties - Taxation | Income Tax for assessment (Inter Level) PDF Download

P1 : One word questions and answers.
1. The property which is self occupied for business or profession is charged under the head income from house property. (True or false)
2. What about other properties i.e. the property which is self occupied for residence or property which is let out for residence or business or the property which is vacant.
3. Under which head income from independent plot of land is taxable.
4. What if such land is attached or is a part of building.
5. A R-OR is liable to pay tax in India for all property whether situated in India or outside India. (True or False)
6. A R-NOR and NR is liable to pay tax in India for all property whether situated in India or outside India. (True or False)
7. What do you mean by deemed to be let out property [DLOP]
8. When a property is treated as vacant property.
9. Rental income from residential property owned by a company carrying on the business of property rentals is taxable under the head Income from House Property. (True or False)

Solutions
1. False, such income is charged under the head business.
2. All such properties are charged under the head Income from House Property.
3. Under the head income from other sources if not charged under the head Profit from business, since there doesn’t exist a building.
4. Then under the head income from house property.
5. True.
6. False, only on that property which is situated in India.
7. Where the assessee owns more than one property for his self residence for whole year and he derives no other benefit from such property then one house property according to his choice is treated as SOP for residence and the remaining property is treated as deemed to be let out property.
8. Vacant property means a property in which no one lives. Even the owner does not live in that property. Property remains vacant due to following factors. Suitable tenant is not available, natural calamity has damaged the house therefore could not be let out inspite of best effort of owner.
9. True.

Annual value
Annual value represents earning capacity of the building. It is the value which building would fetch if the property is let out. It is not actual rent. It is market rent. This is the only head in the Income Tax Act, where the notional income is charged to tax. This notional income is actually a loss for the assessee.

Section 23. Computation of Annual Value
1. Section 23(1) Let out property: Even if a property is let out for a day it is treated as let out property. AV is ER or AR whichever is higher less loss on account of vacancy. [a or b higher less c]
2. Section 23(2) & (3) SOP-R for whole year: AV is nil.
3. Section 23(4) DLOP: Assessee owns more than one property for his SOP-R then one SOP-R is treated as SOP for residence and the remaining property is treated as DLOP. AV is Expected rent

Section 23(1)(a). Expected Rent
1. Expected rent is the sum for which the property might reasonably be expected to let from year to year. Expected rent is the value which the property might fetch, if the property is let out. Expected rent shall always be computed for 12 months. Expected rent shall be computed for less than 12 months only if property is purchased / construction completed during the PY for that PY.

2. Expected rent depends upon following three factors.
    a. Municipal Valuation (MV) of the property: Rent fixed by municipal authority for collection of municipal tax (MT). For this local authority makes a              periodical survey of all buildings in its jurisdiction. Such valuation (annual rateable value) may be taken as strong evidence representing the                  earning capacity of the building. However MCD values the property on area wise basis.
   b. Fair Rent of the property (FR) = Market Rent. Rent fetched by similar property in the similar locality.
       Note 1: If fair rent is not given in the question actual rent of 12 months is treated as fair rent.
   c. Standard Rent (SR) of the property under the Rent Control Act: It is the rent fixed by the State Government. It was held by the Court that                       Expected rent of the property cannot exceed Standard Rent.

3. Expected rent of the building is MV or FR whichever is higher but limited to SR.

P1: Find out expected rent from the following informations.

Ans: 51; 63; 80; 96; 52; 44

Section 23(1)(b). Actual Rent
Actual rent is computed only when property is let out.
1. Actual rent is the rent received or receivable.
2. Actual rent = let out period – unrealised rent of the current previous year + vacant period. Ignore the period for which property is self occupied for residence.
Note 1: Unrealised rent is the rent which the owner could not realised from the tenant. Unrealised of earlier financial year is not allowed as deduction.
Note 2: Loss on account of vacancy can arise only when property is let out even for a day. Where the property could not let out for whole year it is treated as vacant property. Its AV is reduced to nil.

Section 23(1)(c). Loss on Account of Vacancy
1. Where the property remains vacant for whole year expected rent of the building gets reduced to zero and therefore its annual value is taken as zero.
2. It happens in case where inspite of all genuine effort, the property could not be let out. In such a case, ER of the building is reduced to zero and therefore its annual value is taken as zero.