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The Nuances Of Law With Regard To Taxation Of Self-Occupied Property
Posted by Pradeep Sadanapalli | August 28, 2006 | 340 views
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Loading ...The taxation of “Income from House Property” is an example of notional income being charged to tax under the Income-tax Law. The most interesting aspect of taxability under this head is that the tax is imposed irrespective of whether the property is let out or whether in reality any income is earned or not. At least in the case of a property, which is let out, one may justify himself that the tax is paid only on the rental income generated.There are many instances where self occupied properties or vacant properties are subject matter of taxation, even though they have not generated any real income. Therefore, it is more prudent to say that the head “Income from House Property” is not a tax on income but a tax on the “annual lettable value” of the property owned by a person. It needs mention that under the Income-tax Law, in case a property is categorised as self-occupied property, the Annual Value shall be deemed as “NIL” resulting in zero tax liability. This article analyses the nuances of the Law with regard to taxation of Self Occupied Property.
What is a Self Occupied Property?
A property, which may be used by the owner for “own residence”, is considered to be a self-occupied property. ” Own residence” would require the owner of house to reside in such house. However, there may be a situation where the owner does not stay continuously in a property, still it would be considered as a self occupied property for Income-tax purposes. In such cases the onus is on the assessee to furnish the evidence on record to show that he retains the said house for self-occupation. For example, Mr.A, owner of a property in Srilanka which is occupied by his daughter and son-in-law can claim it to be self occupied property under the Indian Tax Law, so long as the evidence on record suggest that the house was retained for personal occupation. Documents such as pass port/ Number of visits to Srilanka in a year could be used as evidence.
On the other hand, there may be a situation where Mr.A, who is the owner of a property, shifts his residence to his father’s house to take care of his health. In such cases, Mr.A, cannot claim the annual value of his property as NIL, as it is not in his occupation.
Vacant properties
Apart from self-occupied property, the annual value of vacant properties owned by an assessee shall be considered to be NIL. However, such vacancy shall be on account of :
* employment elsewhere; or
* engaged in business or profession elsewhere;
In case a person who owns a property in Chennai, vacates the property and moves to Bangalore on account of employment, the annual value of the property at Chennai continues to enjoy exemption from taxability. This position does not alter even in case where he buys another property in Bangalore for self- occupation. In such cases he enjoys exemption for both the properties.
On the other hand, an assessee being an owner of a house and residing elsewhere in a flat allotted to his wife by her employer is not entitled to the benefit of self- occupation in respect of his property, as the purpose of his residence with his spouse was neither his employment nor profession or business.
Deemed let out properties
A person may own two or more properties and all such properties may be used for his self-occupation. However, the income-tax law provides that the annual value of only one property shall be deemed to be `Nil’ in such cases. Therefore, it is automatic that the fair rent of the remaining self-occupied properties shall be offered for taxation.
In case of deemed let-out properties, the law grants option to the assessee to select a property of his choice which he would like to treat as self-occupied property for tax purposes.
Therefore, one can plan and offer the property, which is carrying higher fair rental value. For eg. A person owns self occupied property in Chennai as well as in Ooty. Say the fair rent of Chennai property is Rs.2.50 lakhs per annum as against the fair rent of Rs.1.20 lakhs per annum of Ooty property. As the Law allows only one property to be treated as a self- occupied property, the Chennai property, where the annual value is high can be opted as self-occupied property. It needs mention that such decision-making shall be made after considering the amount of interest on loan borrowed, which is a crucial aspect for planning. Option to treat a particular property as self-occupied property can be changed on a year-to-year basis as there is no specific bar under the law. Once a property is considered as deemed let-out, all the other provisions applicable for a let out property shall be invoked for computation of its income.
Sources:
An Artcile in The Hindu by G.R. HARI, Chennai-based practising Chartered Accountant
Topics: Property Matters |
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