Income from House Property
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What is the first step in determining the gross annual value of a let out house property?

  • Determine the reasonable expected rent (correct)
  • Find out the rent actually received
  • Subtract loss due to vacancy
  • Exclude unrealized rent

    • The gross annual value is only based on the actual rent received from the property.

    False

    What is the maximum duration for which the concession of nil annual value is applicable for a property not let out?

    2 years

    The annual value of property held as stock-in-trade and not let out is considered to be _____ during the whole or any part of the previous year.

    <p>nil</p> Signup and view all the answers

    Match the components of income computation with their definitions:

    <p>Gross Annual Value = Expected income capacity of a property Net Annual Value = Gross annual value minus municipal taxes Standard Deduction = Fixed percentage deduction from the net annual value Interest on Borrowed Capital = Deduction for loans taken to purchase or renovate property</p> Signup and view all the answers

    Which of the following factors is NOT considered when determining reasonable expected rent?

    <p>Personal income of the landlord</p> Signup and view all the answers

    The gross annual value is solely determined based on the rent a property is expected to receive.

    <p>False</p> Signup and view all the answers

    What must be deducted from the gross annual value to calculate the net annual value?

    <p>Municipal taxes</p> Signup and view all the answers

    What is the Gross Annual Value for property X?

    <p>110,000 Rs.</p> Signup and view all the answers

    The loss due to vacancy for property Y is considered to be Rs. 10,000.

    <p>False</p> Signup and view all the answers

    What is the municipal valuation of property X?

    <p>Rs. 1,45,000</p> Signup and view all the answers

    The fair rent of property X is Rs. _____

    <p>1,36,000</p> Signup and view all the answers

    Match the following properties with their respective maximum standard rents:

    <p>Property X = 1,24,000 Rs. Property Y = 1,12,000 Rs. Property Z = 1,10,000 Rs. Property A = 1,07,000 Rs.</p> Signup and view all the answers

    What is NOT one of the three conditions for income to be taxed under 'Income from house property'?

    <p>The assessee must be the tenant of the property.</p> Signup and view all the answers

    Rental income from a vacant plot is chargeable under the head 'Income from house property'.

    <p>False</p> Signup and view all the answers

    What type of income is taxable for an owner who rents out a building?

    <p>Income from house property</p> Signup and view all the answers

    Property income is taxable under Section _____ if certain conditions are met.

    <p>22</p> Signup and view all the answers

    Match the conditions with their descriptions related to 'Income from house property':

    <p>Condition 1 = Property must consist of buildings or land appurtenant Condition 2 = Assessee must own the property Condition 3 = Property not used for business or profession</p> Signup and view all the answers

    Which example illustrates taxable income under 'Income from house property'?

    <p>X rents out his building.</p> Signup and view all the answers

    What is the annual value of a house property chargeable to tax under if the owner uses it for business?

    <p>Not chargeable to tax</p> Signup and view all the answers

    The property must be used for personal purposes to qualify for taxation under 'Income from house property'.

    <p>False</p> Signup and view all the answers

    The notional rent of property is allowable as a deduction while computing business income.

    <p>False</p> Signup and view all the answers

    List one type of property that qualifies as 'Income from house property'.

    <p>Residential houses</p> Signup and view all the answers

    In what cases would a residential quarter provided to workers be considered house property used for business purposes?

    <p>When it is provided to run the business smoothly.</p> Signup and view all the answers

    A resident but not ordinarily resident may be chargeable under Section 22 for income from house property situated abroad if the income is received in ______.

    <p>India</p> Signup and view all the answers

    Match the following scenarios with their corresponding tax implications under Section 22:

    <p>X owns property for his business = Not chargeable to tax Y Ltd. allows nominal rent to the government = Business income assessment Residential quarters provided to workers = Not taxable under Section 22 Income from foreign property for a resident = Chargeable under Section 22</p> Signup and view all the answers

    How is the nominal rent recovered from workers treated in the case of X Ltd.?

    <p>As business income</p> Signup and view all the answers

    Annual value of a house property situated abroad is not taxable for non-residents.

    <p>False</p> Signup and view all the answers

    What is the treatment of rent collected by Y Ltd. for providing rooms to the Government?

    <p>It is assessable as business income under Section 28.</p> Signup and view all the answers

    In the case of A renting property to B, how should the annual payment of Rs. 1,50,000 be treated?

    <p>Split between rent of the building and charges for services</p> Signup and view all the answers

    When the entire amount for renting property is treated as business income, it is legally correct.

    <p>False</p> Signup and view all the answers

    What is the amount of rent for the air-conditioned lecture hall in the second example provided?

    <p>Rs. 3,00,000</p> Signup and view all the answers

    The income from the letting of machinery, plant, and furniture is taxable as ____________.

    <p>business income or income from other sources</p> Signup and view all the answers

    How is the income from the letting of an air-conditioned lecture hall categorized?

    <p>As business income or income from other sources after expenses</p> Signup and view all the answers

    It is acceptable to assess the rent for the building and furniture separately when they are being let together.

    <p>False</p> Signup and view all the answers

    Match the following examples with their respective rental categorizations:

    <p>A's rent from B (Rs. 1,50,000) = Split into rent for building and service charges X's furnished lecture hall (Rs. 5,00,000) = Taxable as business income or income from other sources X's second example (Rs. 3,00,000 and Rs. 2,00,000) = Considered inseparable for taxation purpose Unseparated rent of machinery and building = Taxable under business income</p> Signup and view all the answers

    What section relates to the annual value of property letting?

    <p>Section 22</p> Signup and view all the answers

    Which type of deposit is included in rent received or receivable on a pro rata basis?

    <p>Non-refundable deposit</p> Signup and view all the answers

    Advance rent can be considered as rent received/receivable of the year it was received.

    <p>False</p> Signup and view all the answers

    What is the criterion for unrealized rent to be excluded from rent received or receivable?

    <p>The tenancy must be bona fide, the tenant must have vacated, and reasonable steps must be taken to recover unpaid rent.</p> Signup and view all the answers

    Commission paid by the owner of a property to a broker for rental income is __________.

    <p>not deductible</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Non-refundable deposit = Included in rent received on a pro rata basis Refundable deposit = Cannot be included in rent received Advance rent = Not considered rent received for the year of receipt Commission to broker = Not deductible from rental income</p> Signup and view all the answers

    In the context of rental charges, what is the outcome if a landlord recovers maintenance charges?

    <p>Not included in actual rent received</p> Signup and view all the answers

    All reasonable steps must be taken to recover unpaid rent before unrealized rent can be excluded.

    <p>True</p> Signup and view all the answers

    What happens to unrealized rent if the tenant occupies other properties of the assessee?

    <p>Unrealized rent cannot be excluded if the tenant is in occupation of other properties.</p> Signup and view all the answers

    Study Notes

    Income from House Property

    • Basis of Charge (Sec. 22): Income is taxable under this head if three conditions are met:
      • The property consists of buildings or appurtenant land
      • The individual is the owner
      • The owner does not use the property for business or profession
    • Conditions Illustrated: Examples show how the three conditions apply to different scenarios (e.g., renting out a building vs. using it for a business). Rental income from a vacant plot is not taxable under this head.
    • Definition of "Building": Includes residential, commercial, and other types of buildings. Even public auditoriums are considered buildings.
    • Definition of "Land Appurtenant": Land directly related to the building (e.g. yards, parking, roads).
    • Ownership Requirement: The assessee must be the owner (legal or deemed). This includes individuals, HUFs, firms, companies, cooperative societies, and associations of persons.
    • Income from Subletting: Rental income from subletting is not taxable as house property income, but instead is taxed as a business or other source of income.
    • Deemed Owner: Section 27 defines deemed owners; this includes transfers to spouses or minor children without adequate consideration. This rule does not apply to transfers under mutual agreement for separate residence, or to minor married children.
    • Holder of Impartible Estate: The holder of an impartible estate is considered the owner of the property, even if other family members might benefit from it. Examples illustrate how this applies in cases of royal families or estates.
    • Persons Holding Property from Cooperative Societies/Companies/AOPs: Persons holding properties through co-operative societies, companies, or associations of persons are considered deemed owners. Their rental income is also subject to tax.
    • Property Acquired Through Power of Attorney: Persons acquiring property under a power of attorney are deemed owners, meeting specific conditions of section 53A of the Transfer of Property Act which involves agreement, consideration, and possession.
    • Acquisition of Right in Building under Section 269UA(f): Those with a lease of 12 years or more (or a lease with an extension to 12 years) are deemed owners. Shorter leases are not covered under section 269UA(f):.
    • Annual Value of Property: Even if the property owner is not receiving income, the annual value is still assessed as taxable income under section 22.

    Income from Let Out House Property

    • Gross Annual Value: Determined as the higher of the reasonable expected rent or the actual rent received; municipal valuation, fair rent, or standard rent (if applicable) form the basis for determining reasonable expected rent. Unrealized rental income is not included in the calculation.
    • Deductions: Municipal taxes paid and allowable deductions under section 24 (e.g. for standard deduction and interest on borrowed capital).

    Self-Occupied Property

    • Taxable Income: Income from self-occupied property is taxable under certain conditions, such as situations in which the owner is not in receipt of income.
    • Computation: The process of computing the annual value differs depending on whether the property is self-occupied throughout the year, a part of the year, or if multiple units exist.

    Other Considerations

    • Composite Rent: Any rent income for additional services (such as lift, air-conditioning etc.) must be separated from the rental income from the property.
    • Ownership Disputes: If the title of a property is disputed in court, the tax office will still assess the income to the person in possession or who is receiving the income.
    • Property Held as Stock-in-Trade: If a property is held as stock-in-trade, income is still taxed under the head "Income from House Property".
    • Mutual Principle: Annual value of club properties or cooperative society is not calculated under Income from House Property.

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    Elements of Direct Taxes - Unit 3 PDF

    Description

    Explore the taxation rules for income generated from house properties as defined under Sec. 22. This quiz covers the ownership requirements, conditions for taxability, and the definitions of buildings and land appurtenant. Test your understanding of how rental income is assessed and the various scenarios that affect tax liability.

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