SECOND HOUSE PROPERTY & INCOME TAX IMPLICATIONS

SECOND HOUSE PROPERTY & INCOME TAX IMPLICATIONS

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SECOND HOUSE PROPERTY

Query 1]
I am a retired official. I shall be getting the following income:

  1. 3,90,000/- Pension.
  2. 2,00,000/- as F.D. Interest.
  3. Further, I have received Rs. 22,000/- as Dividend from shares and
    13,500/- Dividend from MF’s.
  4. Also I have sold:
    a)100 shares of company “A” for Rs. 1,28,000/-in June- 2010. These
    shares were purchased in Nov- 2005 at cost of Rs. 45,000/-;
    b) 120 shares of company “B” for Rs. 1,08,000/- in Oct-2010. These
    were purchased in Feb-2006 at cost of Rs. 48,000/-
  5. Further, I purchased 80 shares of company “X” in April 2010 for Rs.
    28,000/- and company “Y” in May 2010 for Rs. 41,000/-and sold them in
    Oct-2010 for Rs. 98,000/- and Rs. 39,500/- respectively.
  6. I own two houses, one purchased in 2005 is occupied by me & my
    family on which I am paying bank loan EMI (For current year, Principal is Rs. 64,140/- & Interest is Rs. 48,505/-). The other house 20 year old is kept vacant on which I paid Rs. 2,050/- as Property tax. The
    annual rent as assessed by NMC for same is Rs. 7,602/-
    Please advise what shall be the tax implication on above during
    assessment year 2011-12. [29@rediffmail.com]

 

Opinion:

  1.      & 2: – Pension income of Rs. 3.90 Lacs & FDR Interest of Rs. 2 Lacs
    is taxable in your hands.
  2.      : Dividend income of Rs. 35,500/- from shares/ mutual funds shall
    be exempt from tax u/s 10(34) of the Income Tax Act-1961.
    4.      : Long term capital gain of Rs. 1,43, 000/- [(1,28,000-45,000)+
    (1,08,000-48,000)] shall be exempt from tax u/s 10(38) of the I.T. Act
    -1961 if it is covered by securities transactions tax.
    5.      Short term capital gain of Rs. 68,500/- [i.e., 98,000+ 39,500 –
    28,000 – 41,000] shall be taxable @ 15% u/s 111A of the I.T. Act
    -1961.
    6.      The tax treatment of house property differs significantly if a
    person owns more than one house property. In this case, you may deem
    one property as self occupied house property and the second house
    property shall be deemed to have been let out and will be taxable on
    notional basis.
    For the benefit of public at large we are elaborating the tax
    treatment of second house property  which may be helpful to you also
    in determining the tax implications and planning your taxes as well.
TAX TREATMENT OF SECOND HOUSE PROPERTY
  1. The income from house property is taxable on the basis of its
    “Annual Value”. The term “Annual value” is elaborat at point No. 6
  2. The tax implication / housing loan benefit for the second house
    property is not similar/ same as applicable to the first house
    The second house property has a different tax treatment
    under the Income Tax Act-1961.
  3. One house used by the tax payer for his/her own residence is exempt
    from tax as its annual value is treated as Nil.
  4. Where the assessee owns only one house property and it cannot
    actually be occupy by him because it is situated at a place other
    than a place where he is employed or carries on business or
    profession, in such a case also the annual value of the property is
    taken as nil provided the property is not actually let out.
  5. If taxpayers have two or more houses which are used for own
    residence, then assessee have the option to choose one of the house as
    self-occupied house, for which an assessee would like to get an
    exemption from tax and its annual value will be considered as Nil. The
    second house or other houses shall be deemed to be have to been Rented
    out [whether not actually rented out].
  6. What is Annual Value of house property and how it is determin?
    The annual value means the amount for which the property might
    reasonably be expect to be let out from year to year. However, if
    the actual rent received or receivable in respect of any let out
    property is higher, it shall be treat as its Annual Value. The
    annual value is always take to be NIL in case of one self-occupy
  7. How to calculate annual value/taxable value of property:
    Annual value of property is considere as higher of the following:
    (i) actual rent received a year; (ii) municipal value; (iii) fair rent
    of the property.
    As mentioned above, the assessee has the option to choose only one
    house as self-occupied property. Rest of property is assessable to
    income tax on the basis of its annual value.
  8. Deductions
    From the annual value the following deductions are available under the
    Income Tax Act: –
    a] Municipal Tax paid.
    b] 30% of the net annual value of the house property towards Repair &
    Maintenance charges (Deduction is fix @ 30% whether assessee incurs
    more or less amount on repair and maintenance of the house).
    c] Actual Interest pay on housing loan whether house is actually let
    out or is deem to be let-out.
    d] For self-occupied property, maximum interest on housing load is
    restricted to Rs. 1,50,000 p.a., subject to certain other
  9. Effectively, if second house is keep for own use, the tax is
    payable on notional rent as the property is deem to have be let
    out and is taxable on the basis elaborate above. In respect of such
    deemed let out house property, one can claim interest as deduction u/s
    24(b) without any monetary limit. However, for the second house
    property, no deduction is available for repayment towards the
    principal portion of housing loan under section 80C as clause ( xviii)
    to section 80C of the I T Act reads as under: –
    “(xviii) for the purposes of purchase or construction of ‘ a’
    residential house property the income from …..”.
Query 2]
With reference to your tax talk dated 22.11.2010 & 01.11.2010, please
enlighten on the following subject:
1.      Can Jain have HUF file?
2.      Whether PPF A/c can be open in the name of HUF? [SKJ]
Opinion:

1.      Hindu law is applicable to Jain, Sikhs & Buddhist also &
accordingly all this could have HUF File.
2.      A PPF account is not allow to be open by HUF w.e.f. 13.5.2005.
However, all the accounts which were open earlier will continue to
earn interest till their maturity. It may be note that the maximum
amount of Rs.70,000/- can only be deposit by a person in a financial
year in a PPF account opened in his name and in the name(s) of a
minor(s) & HUF, all taken together.

SECOND HOUSE PROPERTY


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