Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: articles on VAT and GST in India :: due date for vat payment :: VAT RATES :: empanelment :: TDS :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: TAX RATES - GOODS TAXABLE @ 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: VAT Audit :: cpt :: form 3cd
« News Headlines »
 First time filing income tax? Here's all you need to know about Form 16 and Form 26AS
 New Opening Financial Controller Chartered Accountant (Manufacturing Plant) A Leading Company
 Income Tax Filing 2017: All you want to know about the single page ITR form SAHAJ
 How to benefit from investments in tax saving mutual funds
 60 per cent of income tax notices on fishy cash deposits returned
 All about income tax return form Sahaj
 Why seeing Form 26AS is a must before filing tax return and how to access it
 No tax on notice period pay cut
 Interpretation Of Central Goods And Services Tax (Cgst) Act (Part-1)
 What to do if you haven’t filed your taxes
 Income Tax Declaration To Employer: 10 Changes You Should Be Aware Of

Tax concessions from a vacant house
November, 30th 2007
Interest rates have been on the rise for almost three years. While the interest rates were on a downslide during 2001-03, many individuals made investments in real estate with the twin objective of owning house property and getting some tax rebates.

Today, those investments may seem like an albatross. Over the last three years, interest rates have increased by around 500 basis points, leading to a near 50% rise in EMIs. However, few know that you can avail of the tax concessions, even if your house property is lying vacant.

If you have taken a home loan, you are entitled to two deductions - deduction of interest and deduction of principal. You can claim a deduction of the principal sum and stamp duty, registration fee and other specified expenses incurred for the purpose of the house property under Section 80 C (up to a maximum of Rs 1 lakh; inclusive of other tax-saving investments such as PPF and life insurance premia) starting from the financial year in which the house property is purchased or constructed. This concession is applicable only in the case of a self-occupied (or deemed to be self-occupied) property.

Similarly, the borrower can also claim a deduction of the interest due on the housing loan under Section 24. Interest deduction on the housing loan is allowed to the extent of Rs 1.5 lakh in case the house was acquired or constructed after April 1, 1999. If the house was acquired or constructed before that date, a deduction of up to Rs 30,000 is permitted.

Often, individuals move cities or stay in a different locality (within the same city) for professional reasons and leave their house property vacant. Let's illustrate this with the example of Sanjay Verma, who bought a house in Mumbai in 2002 and had to shift to Delhi due to his job. If the flat in Mumbai is the only flat he owns, he can avail of the tax concessions (under Section 80-C and Section 24) even if this flat is lying vacant and he is paying rent for the house in Delhi.

As per the rules, if an individual buys a house property for self-occupation but cannot occupy it due to employment, and the property is lying vacant, its 'annual value' in taken as nil. The 'annual value' is the value after deduction of municipal tax, if any, paid by the owner. The annual value or 'notional rent' is determined in four ways (a) actual rent received; (b) municipal value (determined by the municipal authorities for levying taxes on house property); (c) fair rent (the rent a similar property can fetch in the same or similar locality); and (d) standard rent, that is fixed under the Rent Control Act.

In this scenario, Verma can avail of tax concessions on the interest paid on his housing loan. In fact, he can derive twin benefits in case he is paying rent for his house in Delhi and gets an HRA from his employer. This way, he can reduce his taxable income substantially.

What happens if Verma decides to rent out his flat in Mumbai sometime in the middle of this financial year? In this case, he can be still eligible for tax concessions for the period during which his Mumbai flat was lying vacant.

Tax concessions can also be availed of in case of more than one vacant house property. Let's take the case of Verma's colleague, Alok Jain, who has two vacant house properties - one in Mumbai, another in Bangalore - and he is living in Delhi for reasons of employment. In the case of two vacant house properties, a notional rent (or annual value) is applicable to one property. In this case, Jain can treat any one house as meant for self-occupation. If Jain declares the Mumbai flat as the one meant for self-occupation, the Bangalore flat is deemed to be let out. On the Mumbai flat that is vacant, the same concessions are applicable as the one applicable to Verma.

Let's assume the annual value of Jain's Bangalore flat is Rs 3.6 lakh. He can deduct a third of this value (Rs 1.2 lakh) as expenditure towards repairs and maintenance. After that, Jain can set off interest paid on this house property against the notional rent. Let's assume Jain pays an interest of Rs 90,000 on the loan for his Bangalore house. The net notional income from his Bangalore flat comes down to Rs 1.5 lakh, on which Jain is liable to pay tax.

If Jain falls in the highest income bracket, the income tax he is liable to pay for the notional income from his Bangalore flat comes to around Rs 50,985 (@33.99%). He has to pay no tax for his flat in Mumbai.

Anand R Bhat
(The author is associate director, PricewaterhouseCoopers)
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Development Software Programming Software Engineering Custom Software Development Requirement Based Software Development Software Solutions Software Serv

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions