Income from house property & tax deduction

Annual value is determined on the following basis

a)    Compare fair rent with municipal value, higher of the two is considered as A.

b)    Compare A with Standard rent, lowerof the two is considered as B. (gross annual value for deemed let out property, your quest. 1)

c)    Compare B with Actual rent (AR) received-

1.    If AR is greater than B then AR is annual value.

2.    If B is greater then AR then-

i.    If due to vacancy, AR is the annual value.

ii.    If due to any other factors, B is the Annual value.

1.    In your quest. value calculated in b) will be considered as Annual value as actual rent received is NIL.

2.    If you plan to let out property to your brother and if the value is lesser then income from house property will be calculated from the above method and if I’m not mistaken then value B will be considered as Annual value for the income tax purpose.

3.    A) If the property is let out to your brother then on let out property there are no restrictions on the maximum amount that can be claimed as interest.

B) If the property is vacant then you can claim  upto Rs. 1.5 Lac as interes.

4.  You can claim interest u/s 24 (b) on due basis. Therefore you can claim (Interest on loan from SBI + Interest on loan from parents) upto Rs. 1.5 lac if property is vacant. (If on the same house) and if not vacant then as per 3. A)

             5 & 6. Interest loan to your parents is taxable on due basis.

Hope your query is solved,

Please correct me members if I'm wrong.

Yes, Ma'm,

The concept of FR do not work in practical. 

I didnt say i disagree wih your answer.

I wrote my opinion.

Thanks Ketan, Celiena for your response.

Ketan, appreciate your detailed analysis.

As for let out of property, I understand that the interest deduction does not have any limit. I think if the property is vacant and so notional rent is applicable, then the income from property calculaton takes in account the entire interest paid (not limited to 1.5Lakh). Section 24(b)

As for the understanding of fair rent v/s market rent v/s standard rent.. I am still unsure if I can charge less than market rent to my brother since relative. The main constraint for this arrangement would be that income from property would indicate more loss if rent is less and so should not be looked upon as illegal way to evade tax. Is there any similar case/judgement from court towards this scenario?

Also, are there any guidelines defined for the interest rate for loan from relatives? Similarly, are there any guidelines defined for such loan repayment? My assumption is that both these are as per an agreement between lender and borrower since it is a loan from relative.

Abhibjit ji,

can you tell the house in which you are staying with parents is on who's name??

According to me you can do- If it's on your parents name then you can claim other house as self occupied

If it's on your name then question of notional rent arises.

members please correct me if I'm wrong.

The vacant house is on my name so can be treated as self occupied (if I stay there) else pay notional rent (if vacant). My parents house is on my father name. Since I need to pay notional rent anyways on the vacant house, it is better that I rent it and brother uses it for his stay. Hence the need to understand if lesser than market rent is ok from brother since relative?

Abhijit ji,

In this case, if you are charging lesser rent to your brother, Annual rent will be higher of municipal value or actual rent. So, even if you charge lesser rent to your brother municipal value will be chargeable.

Can you please eloborate Ketan?

Just for calc purpose: lets assume market rent is 15000Rs/month and I charge 8000Rs/month from brother. How do we calc municipl rent? my municipality tax per month is 2230Rs for ~900sq ft carpet area.

Sir,

Municipal Value- For collecting municipal taxes, the local authority makes a periodical survey of all buildings in its jurisdiction. So, MV (municipal value) varies area to area.

If market rent is 15K then in my opinion it will be considered as Standard rent (SR) as this will be the rent charged by the flat owners in the locality.

In this case

MV= say13,000/-

AR= 8,000/-

SR= 15,000/-

Now, MV will be compared to SR (as FR can not be determined) lower of the two i.e. 13,000/- will be compared to AR. Higher of the two will be considered as GAV. (Gross Annual value)

Then income will be calculated as follows:

GAV                                                    13,000

(-) Municipal taxes                               (xxxxxx)

NAV                                                  XXXXXXXXXX

(-) deductions u/s 24

30% of NAV                                      ----------------

Interest on borrowed capital         ----------------

Income/(loss) from house property ­_XXXXXXX

Hope will clear your doubt sir...

Thanks Ketan. Appreciate your response.

If the property is vacant for the reason other than that specified u/s 23(2)(b), then the property should have ben deemed to be let out during the previous year, provided that the property is the only property owned by the assesse & he does not own more than 1 property.

So in your case if you owning only the property as mentioned & no other property is being owned by you then it will be considered as an self occupied property & you can take interest deduction upto 1.5l only.

I have attached the extracts of section 23(2)(b)

23 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.

In that case if you own only 1 house (on which you are repaying SBI loan) it will be treated as self-occupied and no "deemed to be let out" concept would apply.

My query relates to Standard Deduction of 30 % from the value of Rent.  If party has entered into the agreement to let out property alongwith Furniture and fixture of which rent of property decided at 10000/- per month and rent for enjoyment of furniture and fixture decided at Rs. 7000/- per month . Whether standard deduction is available on total rent of Rs. 17000/- per month or only on Rent of Property of Rs. 10,000/- per month ?

Definition of Rent is not given anywhere except u/s. 194I where it says that rent means any payment by whatever name called under any lease sublease, tenancy or any other agreement or arrangement for the use of (either seperately or together) any land or building (including factory building), or land appurtant to building (including factory building) or machinery or plant or equipment or furniture or fiting whether or not any or all of the above are owned by the payee."

Please give case laws if any available on this topic.

Thanks.