INCOME TAX IMPLICATION
Query 1]
Sir, Presently I own a house and repayment of entire loan amount is already over. I now wish to purchase a second house. My wife is also working. I want to register the house in joint name so that both, I and my spouse can also enjoy the housing loan rebate. Kindly advise how both of us can avail tax benefit? Whether sale deed is to be executed on 50:50 basis. In such event whether both interest and installment can also be claimed separately by both of us independently on the basis of our share in the property. Kindly Advise about the income tax implications/ benefit on the second house property. [murli_radha@rediffmail.com]
Opinion:
- The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated at point No. 6 hereunder.
- The tax implication / housing loan benefit for the second house property is not similar/ same as applicable to the first house property. The second house property has a different tax treatment under the Income Tax Act-1961.
- One house used by the tax payer for his/her own residence is exempt from tax as its annual value is treated as Nil.
- Where the assessee owns only one house property and it cannot actually be occupied 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.
- 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].
- What is Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected 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 treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property. - How to calculate annual value/taxable value of property:
Annual value of property is considered 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. - 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 fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let out or is deemed 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 stipulations. - Effectively, if second house is kept for own use, the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated 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 …..”. - With above Rules & Calculation in mind, you have to decide whether:
a) it is worthwhile to purchase the property with your name as a co-owner or
b) simply purchase the property in the name of your wife only.
Query 2]
Sir, Kindly let me know
- Whether the amount received as survival benefit on LIC Money Back Policy is taxable? Whether it should be included in the income from other sources? Please elaborate.
- Whether the dividend received from the Central Government Employees thrift and credit society is taxable or exempt from income tax? Whether it should be included in the income from other sources? [adpapuwar@gmail.com]
Opinion:
- Under Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax.
However, this rule does not apply to following amounts:
a) sum received under Section 80DD(3), or
b) any sum received under a Keyman Insurance Policy, or
c) any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured. - Dividend received from the credit society is taxable and has to be included under the head “Income from Other sources”.
Query 3]
Sir, please clarify the following points.
- Whether the interest credited to PPF account every financial year is eligible for claiming deduction under section 80C?
- I am residing in one portion of my house and the other portion was given on rent. I am paying house tax. Can I show the income from house property after the standard deduction of 30% from (rent received – tax paid to local authorities)?
- I am depositing the amount (online) to the SBI A/C of my son as a gift from my salary. What are the implications of gift tax? Kindly elaborate. [M.Rama Krishana]
Opinion:
- Interest credited to the PPF A/c. is not eligible for deduction u/s 80C.
- Municipal tax paid by you needs to be divided basis in two parts. One pertaining to your self occupation and the other towards the part of the house that is let out. The same can be done on the basis of area in occupation or on any other reasonable, logical & justifiable basis. 30% deduction towards Repairs & Maintenance can be claimed on [Annual value (i.e., rent) Less municipal tax as apportioned above towards part of the property that is let out].
- No Income tax implication is there, on gift by you to your son.
INCOME TAX IMPLICATION
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