Dibrugarh University B.Com 3rd Semester Income Tax Law and Practice Notes Unit – 2

Unit – 2

Computation of Income under different heads - 1

Income from Salaries

Meaning of Salary

Section 17(1) gives an inclusive definition of ‘Salary’

Salary includes –

(i) wages;

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages;

(v) any advance of salary;

(vi) any payment received by an employee in respect of any period of leave not availed by him;

(vii) Employer’s contribution to Recognized Provident Fund (RPF) in excess of 12% of employee’s salary and interest credited to recognized provident fund in excess of 9.5% p.a;

(viii) the aggregate of all sums that are comprised in the transferred balance of an employee participating in a recognized provident fund to the extent to which it is chargeable to tax;

(ix) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a notified pension scheme referred to in section 80CCD.

Basis of charge (Section 15)

(i) Section 15 deals with the basis of charge. Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.

(ii) However, where any salary, paid in advance, is assessed in the year of payment, it cannot be subsequently brought to tax in the year in which it becomes due.

(iii) If the salary paid in arrears has already been assessed on due basis, the same cannot be taxed again when it is paid.

Arrears of Salary

Salary is taxable on ‘due’ or ‘receipt’ basis whichever is earlier, but if there are any arrears of salary which have not been taxed in the past, such arrears will be taxed in the year in which these arrears are paid or allowed to the employees. For example, if the government announces increases in dearness allowances in the previous year 2019-2020 which is effective from 1.1.2017 then arrears from 1.1.2017 to 31.3.2019 were never due earlier. These arrears will be taxed in the previous year in which these are paid or allowed although the arrears of salary relate to the past years. In such cases the assessee can claim relief of income-tax under section 89, if he so desires.

Advance Salary

Advance salary is taxable when it is received by the employee irrespective of the fact whether it is due or not. It may so happen that when advance salary is included and charged in a particular previous year, the rate of tax at which the employee is assessed may be higher than the normal rate of tax to which he would have been assessed. Section 89(1) provides for relief in these types of cases.

House Rent Allowances [Section 10(13A)]

House Rent Allowances is given by the employer to the employee to meet the expenses in connection with rent of the accommodation which the employee might have to take. House Rent Allowances is taxable under the head ‘salaries’ to the extent it is not exempt under section 10(13A). House Rent Allowances is exempt under section 10(13A) to the extent of the minimum of the following three amounts:

a. Actual House Rent Allowances received by the employee in respect of the relevant period.

b. Rent paid – 10% of salary for the relevant period.

c. 50% of the salary where the residential house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of the salary where the house is situated at any other place, for the relevant period.

The minimum of the above three amounts shall be exempt from tax and the balance shall be taxable and thus included in gross salary of the employee.

Entertainment Allowances:

Entertainment Allowance received is fully taxable and is first to be included in the salary and thereafter the following deductions is to be made. This deduction is allowed only to a Government employee. In case of entertainment allowances, the assessee is not entitled to any exemption but he is entitled to a deduction under section 16(ii) from gross salary. The amount of deduction will be minimum of the following three limits:

a. Actual Entertainment Allowances received.

b. One-fifth of his basic salary; or

c. Rs. 5000

Amount actually spent by the employee towards entertainment out of entertainment allowance received by him is not a relevant consideration at all.

Professional tax on employment

Professional tax or taxes on employment levied by a State under Article 276 of the constitution is allowed as deduction only when it is actually paid by the employee during the previous year.

If professional tax is reimbursed or directly paid by the employer on behalf of the employee, the amount so paid first included as salary income and then allowed as a deduction u/s 16.

Gratuity

Gratuity is a payment made by the employer to an employee in appreciation of the past service rendered by the employee. Gratuity can either be received by the employee himself at the time of his retirement or the legal heir on the event of the death of the employee. Now-a-days gratuity becomes a normal payment applicable to all employees. In fact, Payment of Gratuity Act, 1972 is a statutory recognition of the concept of gratuity. Almost all employees enter into an agreement with employees to pay gratuity.

Exemption in respect of Gratuity [Section 10(10)]

1. Retirement gratuity received under the Pension Code Regulations applicable to members of the Defence Service is fully exempt from tax.

2. Central / State Government Employees: Any death cum retirement gratuity is fully exempt from tax.

3. No-government employees:

(i) Non-government employees covered by the Payment of Gratuity Act, 1972

        Any death cum retirement gratuity is exempt from tax to the extent of least of the following:

       a. Rs. 10,00,000

       b. Gratuity actually received

       c. 15 days’ salary based on last drawn salary for each completed year of service or part thereof in excess of 6 months.

(ii) Non-government employees not covered by the Payment of Gratuity Act, 1972

         Any death cum retirement gratuity is exempt from tax to the extent of least of the following:

         a. Rs. 10,00,000

         b. Gratuity actually received

         c. Half months’ salary (based on last 10 moths’ average salary immediately preceding the month              of retirement or death) for each completed year of service.

Leave Salary or Leave Encashment

Generally, employees are allowed leaves during the period of service. Employee may avail such leaves or in case the leaves are not availed, then the leaves may either be lapsed or accumulated for future or allowed to be encashed every year or at the time of termination / retirement. The payment received on account of encashment of unavailed leave would be form part of salary. However, section 10(10AA) provides exemptions in respect of amount received by way of encashment of unutilized earned leave by an employee at the time of his retirement whether on superannuation or otherwise. Leave encashment to an employee, while he continues to be in service with the same employer, is fully taxable.

Exemption of amount received by way of encashment of unutilized earned leave on retirement [Section 10(10AA)]

The provisions of this clause are mentioned below:

(a) Government employee: Leave salary received at the time of retirement is fully exempt from tax.

(b) Non- government employee: Leave salary received at the time of retirement is exempt from tax to the extent of least of the following:

      (i) Rs. 3,00,000

      (ii) Leave salary actually received

      (iii) 10 months’ salary (on the basis of average salary of last 10 moths)

      (iv) Cash equivalent of leave (based on last 10 moths’ average salary immediately preceding the date of retirement) to the credit of the employee at the time of retirement or death. Earned leave entitlement cannot exceed 30 days for every year of actual service rendered for the employer from whose service he has retired.

Profits in lieu of Salary [Section 17(3)]

It includes the following:

(i) Compensation on account of termination of his employment

The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment.

(ii) Compensation on account of modification of the terms and conditions of employment

The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the modification of the terms and conditions of employment.

Usually, such compensation is treated as a capital receipt. However, by virtue of this provision, the same is treated as a revenue receipt and is chargeable as salary.

(iii) Payment from provident fund or other fund

Any payment due to or received by an assessee from his employer or former employer from a provident or other fund other than

-          Gratuity [section 10(10)]

-          Pension [section 10(10A)]

-          Compensation received by a workman under Industrial Disputes Act, 1947 [section 10(10B)]

-          From provident fund or public provident fund [section 10(11)]

-          From recognized provident fund [section 10(12)]

-          From approved superannuation fund [section 10(13)]

-          Any House Rent Allowance [section 10(13A)]

To the extent to which it does mot consist of employee’s contributions or interest on such contributions.

(iv) Keyman Insurance policy

Any sum received by an assessee under a Key man Insurance policy including the sum allocated by way of bonus on such policy.

(v) Lump sum payment or otherwise

Any amount, whether in lump sum or otherwise, due to the assessee or received by him, from any person-

   (a) Before joining employment with that person, or

   (b) After cessati15/3on of his employment with that person.

Retrenchment compensation [section 10(10B)]

The retrenchment compensation means the compensation paid under Industrial Disputes Act, 1947 or under any Act, Rule, Order or Notification issued under any law. It also includes compensation paid on transfer of employment under section 25F or closing down of an undertaking under section 25FF of the Industrial Disputes Act, 1947.

It may be noted that compensation on account of termination and due to modification in terms and conditions of employment would be taxable as ‘profits in lieu of salary’. However, the retrenchment compensation would be exempt under section 10(10B), subject to following limits.

(a) Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947

15/26 X Avg. salary of last 3 month X completed years of services and part thereof in excess of 6 month

Or

(b) An amount, not less than Rs. 5,00,000 as may be notified by the Central Government in this behalf; whichever is lower.

Provident Fund

Provident fund scheme is a scheme intended to give substantial benefits to an employee at the time of his retirement. Under this scheme, a specified sum is deducted from the salary of the employee as his contribution towards the fund. The employer also generally contributes the same amount out of his pocket, to the fund. The contribution of the employer and the employee are invested in approved securities. Interest earned thereon is also credited to the account of the employee. Thus, the credit balance in a provident fund account of an employee consists of the following:

(i) Employee’s contribution

(ii) Interest on employee’s contribution

(iii) Employer’s contribution

(iv) Interest on employer’s contribution

The accumulated balance is paid to the employee at the time of his retirement or resignation. In the case of death of the employee, the same is paid to his legal heirs.

Types of Provident Fund

1. Statutory Provident Fund (SPF)

The Statutory Provident Fund is governed by Provident Funds Act, 1925. It applies to employees of government, railways, semi-government institutions, local bodies, universities and all recognized educational institutions.

2.  Recognized Provident Fund (RPF)

Recognized Provident Fund means a provident fund recognized by the Commissioner of Income-tax for the purposes of income-tax. It is governed by Part A of Schedule IV to the Income-tax Act, 1961. This schedule contains various rules regarding the following:

(a) Recognition of the fund

(b) Employee’s and Employer’s contribution to the fund

(c) Treatment of accumulated balance etc.

A fund constituted under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 will also be a Recognized Provident Fund.

3. Unrecognized Provident Fund (URPF)

A fund not recognized by the Commissioner of Income-tax is Unrecognized Provident Fund.

4. Public Provident Fund (PPF)

Public Provident Fund is operated under the Public Provident Fund Act, 1968. A membership of the fund is open to every individual though it is ideally suited to self-employed people. A salaried employee may also contribute to PPF in addition to the fund operated by his employer. An individual may contribute to the fund on his own behalf as also on behalf of a minor of whom he is the guardian. For getting a deduction under section 80C, a member is required to contribute to the PPF a minimum of Rs. 500 in a year. The maximum amount that may qualify for deduction on this account is Rs. 1, 50, 000 as per PPF rules. The rate of interest, at present, under the scheme is 8.0%.


Perquisites

The term ‘perquisites’ indicates some extra benefit in addition to the amount that may be legally due by way of contract for services rendered. In modern times, the salary package of an employee normally includes monetary salary and perquisite like housing, car etc.

-          Perquisite may be provided in cash or in kind.

-          Reimbursement of expenses incurred in the official discharge of duties is not a perquisite.

-          Perquisite may arise in the course of employment or in the course of profession. If it arises from a relationship of employer-employee, then the value of the perquisite is taxable as salary. However, if it arises during the course of profession, the value of such perquisite is chargeable as profits and gains of business or profession.

-          Perquisite will become taxable only if it has a legal origin. An unauthorized advantage taken by an employee without his employer’s sanction cannot be considered as a perquisite under the Act.

 The term ‘perquisite’ is defined under section 17(2). The definition of perquisite is an inclusive one. Based on the definition, perquisites can be classified n following three ways:

1. Perquisites taxable in the case of all employees.

2. Perquisites exempt from tax in the case of all employees.

3. Perquisites taxable only in the hands of specified employees.

1. Perquisites taxable in the case of all employees.

The following perquisites are taxable in the hands of all employees:

(i) Rent free accommodation provided by the employer to the employee, Such accommodation may be furnished or unfurnished.

(ii) Any concession in the matter of rent in respect of the accommodation provided or granted by the employer to the employee.

(iii) Any sum paid by the employer in discharging the monetary obligation of the employee which otherwise would have been payable by the employee e.g. the school fees of the children of the employee paid by the employer or the Income-tax of the employee paid by the employer.

(iv) Any sum payable by the employer whether directly or through a fund (other than Recognized Provident Fund (RPF), Approved Superannuation Fund or Deposit Linked Insurance Fund) to effect an assurance on the life of the assessee or to effect a contract for an annuity.

(v) The value of any other fringe benefit or amenity as may be prescribed.

2. Perquisites exempt from tax in the case of all employees.

Following perquisites are exempt from tax in the hands of all employees:

1. Telephone

Telephone provided by an employer to an employee at his residence.

2. Transport facility

Transport facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at a concessional rate.

3. Perquisites allowed outside India by the Government

Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India.

4. Refreshment

Refreshment provided to all employees during working hours in office premises.

5. Annual premium by employer on personal accident policy

Payment of annual premium by employer on personal accident policy effected by him on the life of the employee.

6. Subsidized lunch

Subsidized lunch or dinner provided to an employee.

7. Recreational facilities

Recreational facilities, including club facilities, extended to employees in general i.e., not restricted to a few selected employees.

8. Amount spent on training of employees

Amount paid by the employer on training of employees or amount paid for refresher management course including expenses on boarding and lodging.

9. Sum payable by employer to a RPF or an superannuation fund

Sum payable by employer to a RPF or an superannuation fund or deposit-linked insurance fund established under the Coal Mines Provident Fund or the Employee’s Provident Fund Act.

10. Leave travel concession

Leave travel concession, subject to the conditions specified under section 10.

11. Medical facilities

Medical facilities subject to certain prescribed limits.

12. Rent free house / Conveyance facility

Rent free official residence and conveyance facilities provided to a Judge of the Supreme Court / High Court is not a taxable perquisite.

13. Residence to officials of Parliament

Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament is not a taxable perquisite.

Residential accommodation provided by employer

1. Unfurnished accommodation

a. Accommodation provided by the Government to its employees

The license fee determined by Union or State Government as reduced by the rent actually paid by the employee.

b. Accommodation provided by any other employer

2. Furnished accommodation

Value of perquisite shall be determined as if it is an unfurnished accommodation. Such value shall be increased by 10% p.a. of the cost of furniture (including television sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, the actual hire charges payable for the same. Such valuation of furniture shall be as reduced by any charges paid or payable for such furniture by the employee during the previous year.


Income from house property

Chargeability [section 22]

The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner shall be subject to Income-tax under the head ‘Income from house property’ after claiming deduction under section 24 provided such property, or any portion of such property is not used by the assessee for the purposes of any business or profession, carried on by him, the profits of which are chargeable to Income-tax.

Basis of charges

The basis of calculating income from house property is the annual value. This is the inherent capacity of the property to earn income. Income from house property is perhaps the only income that is charged to tax on a notional basis. The charge is not because of the receipt of any income but is on the inherent potential of house property to generate income. The annual value is the amount for which the property might reasonably be expected to let from year to year.

Conditions for chargeability

The following three conditions must be satisfied before the income of the property can be taxed under the head “Income from House Property”:

(i) The property must consist of buildings and lands appurtenant thereto.

(ii) The assessee must be the owner of such house property.

(iii) The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on him, the profits of which are chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax.

Deemed Ownership [Section 27]

As per section 27, the following persons, though not legal owners of a property, are deemed to be the owners for the purposes of section 22 to 26.

(i) Transfer to a spouse [section 27 (i)]: If an individual transfers any house property to his or her spouse otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the property so transferred. This would, however, not cover cases where a property is transferred to a souse in connection with an agreement to live apart.

(ii) Transfer to a minor child [section 27(i)]: If an individual transfers any house property to his or her minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the property so transferred. This would, however, not cover cases where a property is transferred to a minor married daughter.

(iii) Holder of an impartible estate [section 27(ii)]: The holder of an impartible estate shall deemed to be the individual owner of all properties comprised in the estate. The impartible estate, as the word itself suggests, is a property which is not legally divisible.  

(iv) Member of a co-operative society etc [section 27(iii)]: A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a House Building Scheme of a society/company/association, shall be deemed to be owner of that building or part thereof allotted to him although the co-operative society/company/association is the legal owner of that building.

(vi) Person in possession of a property [section 27(iiia)]: A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act shall be the deemed owner of that house property. This would include cases where the –

(1) Possession of property has been handed over to the buyer

(2) Sale consideration has been paid or promised to be paid to the seller by the buyer

(3) Sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to sell/will etc have been executed.  

In all the above cases, the buyer would be deemed to be the owner of the property although it is not registered in his name.

(vii) Person having right in a property for a period not less than 12 years [section 27(iiib)]: A person who acquires any right in or with respect to any building or part thereof, by virtue of any transaction as is referred to in section 269UA (f) i.e. transfer by way of lease for not less than 12 years shall be deemed to be the owner of that building or part thereof. This will not cover the case where any right by way of a lease is acquired from month to month basis or for a period not exceeding one year.

Deduction from Income from House Property

Income chargeable under the head “Income from House Property” shall be computed after making the following deductions, namely:-

(i) Standard deduction: From the net annual value computed, the assessee shall be allowed a deduction of sum equal to 30% of the net annual value.

(ii) Interest on borrowed capital: Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as a deduction.

Interest for pre-constructed period: Interest will be aggregated from the date of borrowing till the end of the previous year prior to the previous year in which the house is completed and not till the date of completion of construction.

(a) Let out property: Whole of the amount of interest on borrowed capital payable during the previous year and interest for pre-construction period. Without any ceiling limit would be allowed as deduction.

(b) Self-occupied property:

i. Loan taken on or after 1.4.1999: Interest on loan taken for acquisition or construction of house on or after 1.4.1999 and same was completed within 5 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of Rs. 2,00,000 (including apportioned pre-construction interest).

ii. Loan taken before 1.4.1999:  In case of loan for acquisition or construction taken prior to 1.4.1999 or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of Rs. 30,000. (Including apportioned pre-construction interest).

How to compute taxable income from self occupied house property:

Computation of Income of a property which is self-occupied [Section 23(2), (3) & (4)]

1. Where the annual value of such house shall be nil [Section 23(2) (a) & (b)]: Where the property consists of a house or part of a house which –

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil.

2. Where the annual value of such house shall not be nil [Section 23(3)]: The annual value of self-occupied house shall not be nil:

(a) if such house or part of the house is actually let during the whole or any part of the previous year; or

(b) any other benefit there from is derived by the owner from such house.

In the above cases, the annual value shall be determined as per provisions applicable for let out properties i.e. under clause (a), (b) or (c) of section 23(1).

3. Where the assessee has more than one house for self occupation [Section 23(4)]: If there are more than one residential house, which are in the occupation of the owner for his residential purposes then he may exercise an option to treat any one of the houses to be self-occupied. The other house(s) will be deemed to be let out and the annual value of such house(s) will be determined as per section 23(1)(a) i.e. the sum for which the property might reasonably be expected to let from year to year. The assessee in this case, should exercise his option in such a manner that his taxable income is the minimum. Such option may be changed from year to year. However, if an assessee has a house property which consists of two or more residential units and all such units are self-occupied, the annual value of the entire house property shall be taken as nil as there is only one house property thought it has more than one residential unit.

4. Deduction in respect of one self-occupied house where annual value is nil: Where annual value of one self-occupied house is nil, the assessee will not be entitled to the standard deduction of 30%, as the annual value itself is nil. However, the assessee will be allowed deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under:-

a. Loan taken on or after 1.4.1999: Interest on loan taken for acquisition or construction of house on or after 1.4.1999 and same was completed within 5 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of Rs. 2,00,000 (including apportioned pre-construction interest).

b. Loan taken before 1.4.1999:  In case of loan for acquisition or construction taken prior to 1.4.1999 or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of Rs. 30,000. (Including apportioned pre-construction interest).

What is Annual Value?

As per section 23(1)(a) the annual value of any property shall be the sum for which the property might reasonably be expected to be let from year to year. It may neither be the actual rent derived nor the municipal valuation of the property. It is something like notional rent which could have been derived, had the property been let. In determining the annual value there are four factors which are normally taken into consideration. These are:

(a) Actual rent received or receivable: Actual rent received / receivable is an important factor in determining the annual value of a property though this is not the only decisive factor. The actual rent could be dependent upon various considerations.

(b) Municipal value: This is the value as determined by the municipal authorities for levying municipal taxes on house property. Municipal authorities normally charge house tax / municipal taxes on the basis of annual letting value of such house property, which is determined by it based upon many considerations.

(c) Fair rent of the property: Fair rent is the rent which a similar property can fetch in the same or similar locality, if it is let for a year.

(d) Standard rent: The standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control Act, the owner cannot be expected to get a rent higher than the standard rent fixed under the Rent Control Act. Therefore, this is also an important factor in determining the annual value.

How to compute income from a let out house property

As per the Income-tax Act annual value is the value after deduction of municipal taxes, if any, paid by the owner. The annual value may be determined in the following two steps:

Step 1. Determine the gross annual value.

Step 2. From the gross annual value computed in step 1, deduct municipal tax actually paid by the owner during the previous year.

 The balance shall be the net annual value which, as per Income-tax Act is the annual value.

Computation of income from let out house property:

Unrealized rent [Section 23(1)]:

As per the explanation, the actual rent received or receivable mentioned in section 13(1)(b) and (c) shall not include the amount of rent which the owner cannot realize, subject to the rules made in this behalf, In other words, unrealized rent, if any should be deducted from clause (b) or (c) of section 23(1)

Rules for unrealized rent:

The amount of rent which the owner cannot realize shall be equal to the amount of rent payable but not paid by tenant of the assessee and so proved to be lost and irrecoverable –

(a) the tenancy is bona fide;

(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

(c) the defaulting tenant is not in occupation of any other property of the assessee;

(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

Provision for arrears of rent and unrealized rent received subsequently [section 25A]

1. As per section 25A (1), the amount of rent received in arrears from a tenant or the amount of unrealized rent realized rent realized subsequently from a tenant by an assessee shall be deemed to be income from house property in the financial year in which such rent is received or realized, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year.

2. Section 25A (2) provides a deduction of 30% of arrears of rent or unrealized rent realized subsequently by the assessee.

3. Summary:

Section 25A

Arrears of Rent / Unrealized Rent

i. Taxable in the year of receipt / realization

ii. Deduction @ 30% of rent received / realized

iii. Taxable even if assessee is not the owner of the property in the financial year of receipt / realization.

 

Property owned by Co-owners [section 26]

Sometimes the property consisting of buildings or the buildings and lands appurtenant thereto is owned by two or more persons, who are known as co-owners. In such cases, if their respective shares are definite and ascertainable, such persons shall not be assessed as an AOP in respect of such property, but the share of such person in the income from the property, as computed in accordance with sections 22-25, shall be included in his total income as under:

(a) Where house property is self-occupied by each co-owner: Where the house property owned by the co-owners is self occupied by each of the co-owner, the annual value of the property for each of such co-owner shall be nil and each of the co-owner shall be entitled to the maximum deduction of Rs. 30,000 / 1,50,000 under section 24(b) on account of interest on borrowed money.

(b) Where the entire or part of the property is le: As regards, the property or part of property which is owned by co-owners is let out, the income from such property or part thereof shall be first computed as if this property/ part is owned by one owner and thereafter the income so compared shall be apportioned amongst each co-owner as per their definite share.

Income from house property is not charged to tax

In the following cases income from house property is not charged to tax:

(a) Farm house: Income from any building owned or occupied by an agriculturist or receiver of rent / revenue of such land provided that the building is in the immediate vicinity of agricultural land and is used as a dwelling house or as a store house or other out-building.

(b) Property held for charitable purposes: As per section 11, where the property is held for charitable or religious purposes the income from such property is exempt from tax.

(c) House property used for own business / profession: It falls under the head ‘Income from business and profession’ and although no income will be derived but deductions / allowances of such property shall be allowed under the head.

(d) Self-occupied house: Annual value of one self-occupied house shall be taken as nil.

(e) House property of registered trade union / local authority: The income from property held by a registered trade union / local authority is not taxable.

(f) Palace of ex-ruler: The annual value of any one palace in the occupation of an ex-ruler shall be exempted from tax.

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