Mukesh Patel.in
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HOW A SELF OCCUPIED HOUSE IS TAXED?

Special concessions are offered in case of one house property occupied by the taxpayer for his own residence!

Under the Income-tax Act, ‘income from house property’ is a separate head of income, under which the ‘annual value’ of a property, consisting of any building or land appurtenant thereto, of which the taxpayer is ‘the owner’ is chargeable to tax. If, however, a house property is occupied by the taxpayer for the purposes of his business or profession carried on by him value of such property is not chargeable to income tax.

The income from house property for purposes of income tax is based on the ‘annual value’ of the property. The concept of annual value is in effect not a real but a notional concept, since it is defined as ‘the sum for which the property might reasonably be expected to let from year to year.’ For purposes of computation of income under this head, house properties have been classified into the following two categories:

  •  Self-occupied Property (SOP);
  •  Let-out Property (LOP).

SPECIAL CONCESSION FOR ONE SOP

A special concession is offered in case of one house property in the occupation of the owner for his own residence under Section 23(2)(a) and the annual value of such a house is taken as ‘Nil,’ if such property is not actually let during any part of the previous year and no other benefit is derived therefrom.

In the case of CIT vs. Hariprasad Bhojnagarwala 342 ITR 69, the Full Bench of the Gujarat High Court had occasion to deal with an interesting question as to whether a Hindu Undivided Family could be said to be ‘an owner occupying house for own residence’ and in this context could claim the benefit of the annual value being considered as ‘Nil’ within the meaning of Section 23(2)(a). The High Court held that, “a Hindu Undivided Family is not a fictional entity. It is nothing but a group of individuals related to each other by blood relations, or in a certain manner. A Hindu Undivided Family can be seen being a family of a group of natural persons. There is no dispute that the said family can reside in the house, which belongs to the HUF. A family cannot consist of artificial persons. Under Section 13 of the General Clauses Act, the words in masculine gender shall be taken to include females and words in singular shall include plural and vice versa. Therefore, the word ‘owner’ would include ‘owners’ and the words ‘his own’ would include ‘their own’.” The High Court concluded that, “there is nothing, therefore, in the words used in Section 23(2), which excludes application of such provision to HUF, which is a group of individuals related to each other.”

In respect of such property, interest on capital borrowed for purchase or construction of the house property is deductible subject to a maximum of Rs.30,000 under Section 24(b). Where the property is acquired or constructed with capital borrowed on or after 1st April, 1999, the deduction for interest will be available at Rs.1,50,000 in place of Rs.30,000. No other deductions are available in such a case, where the annual value is taken as ‘Nil.’

Where the owner has only one residential house, which cannot actually be occupied by him by reason of the fact that owing to his employment, business or profession, carried on at any other place, he has to reside at another place in a building not belonging to him, the annual value of such a house is taken to be ‘Nil’ under Section 23(2)(b), provided that the house is not actually let out and no other benefit therefrom is derived by the owner. No deductions, other than interest on borrowed capital as mentioned herein.above under Section 24(b), are available in respect of such property.

If the taxpayer has more than one house for his own residential purposes, only one house (as per his choice) is treated as self-occupied for purposes of computation of annual value as mentioned above and all other houses will be ‘deemed to be let out.’ In the case of such properties which are deemed to be let out, the computation of annual value is required to be done as in the case of a Let-out Property.

DEDUCTION FOR INTEREST ON HOUSING LOAN

If a taxpayer has taken a housing loan either for purchase, construction, repair, renewal or reconstruction of his house property, interest on the borrowed capital is allowable as deduction. Whereas there is no limit as regards the amount of interest allowable for deduction in respect of a property which is let out on rent, in case of a self occupied house property, the amount of interest allowed as a deduction is Rs.1,50,000.

If a taxpayer has taken a housing loan from a Bank or Housing Finance Company during the period beginning on 1st April, 2013 and ending on 31st March, 2014 (i.e. during Financial Year 2013-14), an additional one-time deduction of up to Rs.1,00,000 of interest shall be allowed for interest paid on housing loan under the new provisions of Section 80EE. Where the interest payable during Assessment Year 2014-15 is less than Rs.1,00,000, the balance amount shall be allowed in Assessment Year 2015-16. However, it needs to be noted that this benefit shall be available only in the case of first time house buyers and where the amount of loan sanctioned for acquiring the residential house property does not exceed Rs.25,00,000. Moreover, it has also been stipulated that the value of the residential house property acquired should not exceed Rs.40,00,000. 

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