Taxmann's Students' Guide to Income Tax Including GST by Taxmann

Preface

Income-tax is indeed a complex subject. It requires organized study constantly over a period of time to gain effective understanding and grasp of this subject unlike many other fields of study. In such backdrop, a text book on income-tax for B. Com., BBA, CA (Inter), CS (Executive) and CMA (Inter) students must necessarily be written in a simple language, explaining the provisions of law step-by-step with the help of suitable illustrations, without resorting to paraphrasing of sections and legal jargon. The present work conforms to the aforesaid criteria. Readers will find that each topic has been discussed with clarity, followed by pointwise recapitulation. The present edition of the book is designed to bridge the gap between theory and application and stands out distinctly from others on account of the following salient features: u The present edition is thoroughly revised with a view to making it more student-friendly. It is bifurcated into two units. Unit 1 deals with income-tax and Unit 2 covers the provisions related to GST. u The presentation of the subject is designed on teach yourself technique which enables the students to learn faster. u While the law relating to income-tax has been discussed thoroughly, the discussion on GST is equally comprehensive. u u u u u

Each para (with a distinct number) starts with analytical discussion supported by well-thought out original problems. A unique style of illustrating all complex provisions has been adopted. With a view to developing sufficient confidence amongst students to solve practical questions in examinations, every solved problem is followed by an unsolved exercise. Answers to unsolved exercises are given at the end of book in Appendix 4. The Book contains more than 500 solved problems and an equal number of unsolved exercises. The Book is amended up to November 10, 2021. All questions set for CA (Inter/IPCC) Examinations for last 5 years are given along with solutions (of theory as well as practical questions) in accordance with the law applicable for the assessment year 2022-23 (GST questions are solved in accordance with law as amended up to November 10, 2021). All paras, problems and exercises with ➠ symbol are primarily meant for students appearing in professional examinations, though students having meritorious outlook in undergraduate university courses may also refer to the same.

Readers views, comments and criticism relating to the present work are most welcome. 22 Deepali, Pitampura, Delhi - 110034. Email : vks@taxmann.com Phone : 27016686, 9810008160

VKS

About the Authors

Dr. Vinod K. Singhania got his Ph.D. from the Delhi School of Economics in 1976. His fields of special interest include all facets of corporate legislation and corporate economics especially the tax laws. Associated in different capacities with several professional institutes and business houses in India and abroad, Dr. Singhania is author of many popular books and software published by Taxmann. He has to his credit more than 300 research articles which have appeared in leading journals. He has been a resource person in over 800 seminars in India and abroad. He can be reached at vks@taxmann.com. Dr. Monica Singhania is Professor, Faculty of Management Studies, University of Delhi. She is a post-graduate from Delhi School of Economics and a Fellow Member of the Institute of Chartered Accountants of India. She has the distinction of being placed in the merit list of the examinations conducted by both the University as well as the Institute. She has been awarded Ph.D. in the area of corporate taxation from the University of Delhi. She is the author of 7 books on direct tax laws and several research papers which have been published in leading journals. She can be reached at monica@fms.edu

Contents PAGE

Preface About the Authors

v vi

UNIT 1 : INCOME-TAX

1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

2 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

Basic concepts that one must know

What is an assessment year What is a previous year Who are included in person Who is regarded as assessee How to charge tax on income What is regarded as income under the Income-tax Act What is gross total income What is total income and how is it computed What is agricultural income What is difference between exemption and deduction What are capital and revenue receipts What is capital and revenue expenditure How far method of accounting is relevant in computing income What is amalgamation What is demerger Problems on basic concepts

1 1 3 4 4 5 9 10 15 15 15 16 16 17 17 18

Residential status and its effect on tax incidence

What is relevance of residential status What one must know for deciding residential status How to determine residential status of an individual How to find out residential status of a Hindu undivided family How to determine residential status of firm and association of persons How to find out residential status of a company How to determine residential status of every other person What is the relationship between residential status and incidence of tax Connotation of receipt of income - How is it understood What is accrual of income What is income deemed to accrue or arise in India Problems on incidence of tax Other problems vii

25 25 26 33 34 35 35 36 38 39 39 41 46

Contents

viii PAGE

3 32. 33. 34. 35. 36. 37. 37A. 38.

4 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54.

5 66. 67. 68. 69. 70. 71. 72. 73.

6 77. 78. 79. 80. 81.

Income that is exempt from tax

What income is exempted under section 10 What are special provisions in respect of newly-established undertakings in free trade zone, etc. What are special provisions in respect of newly established hundred per cent export-oriented undertakings What are the special provisions in respect of profit from export of artistic hand-made wooden articles How to claim exemption in respect of income from property held for charity How can a political party claim exemption Exemption to electoral trust Problems on income exempt from tax

49 58 60 60 60 69 70 70

Income under the head Salaries and its computation

What do you understand by expression salary What is basis of charge of salary income Different forms of salary - How taxed Different forms of allowances - How taxed Perquisite - When taxable/not taxable Perquisites - How valued for tax purposes What are permissible deductions from salary income What is tax treatment of provident fund What is the tax treatment of approved superannuation fund What is special tax treatment of salary income of non-resident technicians What is the extent of exemption available to other foreign citizens in respect of salary income Deduction under section 80C - How to find out Is salaried employee entitled to relief in respect of salary in arrears, advance, etc. What are important points which one should remember to solve practical problems under the head Salaries Problems on computation of salary income Theoretical problems on computation of salary income

72 73 76 89 96 99 124 125 129 129 129 130 135 136 137 163

Income under the head Income from house property and its computation

What is the basis of charge When property income is not charged to tax What is the basis of computing income from a let out house property How to compute taxable income from self-occupied property What are special provisions when unrealised rent is realised subsequently What is mode of taxation of arrears of rent Problems on computation of property income Theoretical problems on computation of property income

173 177 177 184 191 192 192 203

Income under the head Profits and gains of business or profession and its computation

What is the basis of charge What are the basic principles for arriving at business income Method of accounting - How far relevant for computing business income What is the scheme of business deductions/allowances What are specific deductions under the Act

205 206 208 208 210

Contents PAGE

82. 83. 84. 85. 86. 87. 88. 89. 90. 91.

What are the specific disallowances under the Act What are the deemed profits and how they are charged to tax How and when undisclosed income/investments are taxed When maintenance of books of account becomes compulsory When audit of accounts by certain persons is compulsory What are special provisions for computation of business income What are the special provisions for computing income on estimated basis under sections 44AD, 44ADA and 44AE What are permissible methods of valuation of closing stock Problems on computation of income from business/profession Theoretical problems on business/profession income

Income under the head Capital gains and its computation

92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106.

What is the basis of charge What is included in and excluded from capital asset What is transfer of capital asset Capital gains - How computed What is full value of consideration How to find out expenditure on transfer What is cost of acquisition What is cost of improvement How to convert cost of acquisition/improvement into Indexed cost of acquisition/improvement Capital gain in special cases - How to find out Valuation of capital asset - When can be referred to Valuation Officer Capital gains - When and to what extent exempt from tax How to find out tax on short-term/long-term capital gain Problems on computation of capital gains Theoretical problems on capital gains

Income under the head Income from other sources and its computation

107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 116A. 117. 118. 119.

What is basis of charge Relevance of method of accountancy What is regarded as dividend and how is it charged to tax Winnings from lotteries, crossword puzzles, horse races and card games, etc. - How to compute What is regarded as interest on securities How to find out income from machinery, plant or furniture let on hire How to find out income from composite letting of building, machinery, plant or furniture Money/property received without consideration or for inadequate consideration Share premium in excess of fair market value Advance money received in course of negotiations for transfer of a capital asset - When chargeable to tax How to find out interest on deep discount bonds What deductions are permissible from income from other sources What are other provisions Problems on computation of income from other sources

258 273 275 276 276 277 279 282 282 306

309 309 312 314 316 317 317 317 317 321 340 341 354 365 375

381 383 383 385 386 387 387 388 396 397 398 398 399 400

Contents

x PAGE

9 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130.

10 132. 133. 134. 135. 136. 137.

11 137A. 138. 139. 140. 141. 142. 142A. 143. 144. 145. 146. 146A. 146B. 146C. 147. 148. 149.

Clubbing of income

Transfer of income without transfer of asset - When income therefrom is regarded as that of transferor Revocable transfer of assets - When income therefrom is regarded as that of transferor When an individual is assessable in respect of remuneration of spouse When an individual is assessable in respect of income from assets transferred to spouse When an individual is assessable in respect of income from assets transferred to son s wife When an individual is assessable in respect of income from assets transferred to a person for the benefit of spouse When an individual is assessable in respect of income from assets transferred to a person for the benefit of son s wife When an individual is assessable in respect of income of his minor child What is tax implication of conversion of self-acquired property into joint family property and subsequent partition Other points Problems on clubbing of income

409 409 410 412 415 416 416 417 418 419 420

Set off and carry forward of losses

What is the mode of set off and carry forward Inter-source adjustment - How made Inter-head adjustment - How made Carry forward of loss - How to set off Carry forward and set-off of business loss and depreciation - When permissible in the hands of amalgamated and demerged company or co-operative bank Problems on set off and carry forward of losses

424 424 425 426 432 434

Permissible deductions from gross total income

What are the basic rules governing deductions under sections 80C to 80U Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. Deduction in respect of National Savings Scheme - To what extent available Equity Linked Savings Scheme - When deduction is available Deduction in respect of pension fund - When available Deduction in respect of contribution to a National Pension System (NPS) Deduction in respect of investment made under any equity saving scheme Deduction in respect of medical insurance premia - When and to what extent available Deduction in respect of maintenance including medical treatment of a dependent being a person with disability - When and to what extent available Deduction in respect of medical treatment, etc. - To what extent available Deduction in respect of payment of interest on loan taken for higher education - When and to what extent available Deduction in respect of interest on loan taken for residential house property Deduction in respect of interest on loan taken for certain house property - When available Deduction in respect of interest on loan taken for purchase of electric vehicle - When available Deduction in respect of donations to certain funds, charitable institutions, etc. - How arrived at Deduction in respect of rent paid - To whom and to what extent available Deduction in respect of certain donations for scientific research or rural development - When eligible

443 444 447 447 447 448 450 450 452 453 455 456 457 457 457 462 464

Contents PAGE

150. 151. 152. 153. 153A. 154. 154A. 155. 156. 157. 158. 159. 160. 160A. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170.

12 185. 186. 187. 188.

13 192. 193. 194. 195.

14 201. 202. 203. 204. 205.

Deduction in respect of contributions given to political parties or electoral trust - To what extent deductible Deduction in respect of earnings in convertible foreign exchange - How to find out Deduction in respect of profits and gains from industrial undertaking or enterprises engaged in infrastructure development, etc. - How to find out Deduction in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone Deduction in respect of eligible start-up Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings - How to avail Deduction in respect of profits from housing projects Deduction in respect of profits and gains of certain undertakings in certain special category of States - How to find out Deduction in respect of profits and gains from business of hotel/convention centre in NCR How to find out Deduction in respect of certain undertakings in North-Eastern States - How to determine Deduction in respect of business of processing of bio-degradable waste - How to determine Deduction in respect of Employment of new Employees Deduction in respect of certain income of Offshore Banking Units and International Financial Services Centre - To what extent available Deduction in respect of Inter Corporate Investment - To what extent available Deduction in respect of income of a co-operative society - To what extent available Deduction in respect of certain income of producer companies - To what extent available Deduction in respect of royalty income of authors - To what extent available Deduction in respect of royalty on patents - To what extent available Deduction in respect of interest on deposits in savings accounts - When available Deduction in respect of interest on deposits in case of senior citizens - To what extent available Deduction in the case of a person with disability - To what extent available Deductions from tax liability - How to determine Rebate for resident individuals - How to find out Problems on computation of total income

465 465 465 467 467 468 470 471 471 471 472 472 474 474 475 476 476 478 479 479 479 481 481 482

Meaning of agricultural income and its tax treatment

What is agricultural income What are instances of income held to be agricultural/non-agricultural income What is the tax treatment of income which is partly agricultural and partly from business What is the scheme of partial integration of non-agricultural income with agricultural income

492 494 495 496

Individuals - Computation of taxable income

What is included in income of an individual Taxable income - How computed Tax liability - How calculated Problems on computation of taxable income

501 501 502 513

Hindu undivided families - Computation of taxable income

What is understood by Hindu undivided family What are the basic conditions for assessment of Hindu undivided family What is the basis of computation of taxable income of HUF What is tax implication of partition of a Hindu undivided family Problems on computation of taxable income of HUF

535 535 536 536 536

Contents

xii PAGE

15 212. 213. 214. 215. 216. 217. 218. 219. 220. 221. 222. 223. 224.

16 244. 245. 246. 247. 248. 249. 249A. 249B. 250. 251. 252. 253. 254. 255. 256. 257. 258. 259. 260. 261.

17 266. 267. 268. 268A.

18 269. 270. 270A. 271. 272. 273.

Firms and associations of persons - Computation of taxable income

What is partnership What is the scheme of taxation of firms When remuneration/interest paid or payable to partners is deductible What are the conditions a firm should fulfil under section 184 What are the conditions for claiming deduction of remuneration of partners under section 40(b) What are the conditions for claiming deduction of interest to partners under section 40(b) Carry forward and set off of loss in the case of change in the constitution of firm How to find out income of a firm How to find out tax liability of firm How to find out taxable income of partners Problems on computation of taxable income of a firm and partners How to find out income and tax of AOP/BOI and members Problems on firms and partners

541 541 541 542 542 546 546 547 547 548 548 551 556

Return of income

Who has to submit his/its return of income on voluntary basis as a statutory obligation When return of loss should be filed Can return be filed beyond time Can revised return be filed What is a defective or incomplete return What is Permanent Account Number (PAN) Quoting of Aadhaar number Scheme to facilitate submission of returns through Tax Return Preparers Return by whom to be verified What is self-assessment What is inquiry before assessment under section 142 or 142A What is summary assessment without calling the assessee What is scrutiny assessment under section 143(3) What is best judgment assessment What is income escaping assessment When can mistake be rectified What is time-limit for completion of assessment/reassessment Who is under an obligation to furnish statement of financial transaction What is the requirement of submission of statement by a non-resident having liaison office in India Problem on return of income and assessment

559 562 562 563 563 564 564 564 565 565 566 567 567 568 568 569 569 569 570 570

Advance payment of tax

When a person becomes liable to pay advance tax When advance tax payment becomes due How advance tax is computed What are the consequences when advance tax is not paid

573 574 574 577

Deduction and collection of tax at source

What is the scheme of tax deduction at source (TDS) When and how tax is to be deducted at source from salary When and how tax is to be deducted at source from withdrawal from employees provident fund scheme When and how tax is to be deducted at source from interest on securities When and how tax is to be deducted at source from dividends When and how tax is to be deducted at source from interest other than interest on securities

578 580 582 582 583 583

xiii

Contents PAGE

274. 275. 276. 277. 277A. 278. 279. 280. 281. 282. 283. 283A. 283B. 283C. 284. 284A. 284B. 284C. 284D. 284E. 284F. 284G. 284H. 284-I. 284J. 284K. 284L. 284M. 285. 285A. 286. 287. 288. 289. 290.

19 296. 297. 298. 299. 300. 301. 302.

When and how tax is to be deducted at source from winnings from lotteries or crossword puzzles When and how tax is to be deducted at source from winnings from horse races When and how tax is to be deducted at source from payments to contractors or sub-contractors When and how tax is to be deducted at source from insurance commission When and how tax to be deducted at source from payment of life insurance policy When and how tax is deductible at source from payment to non-resident sportsmen or sports associations When and how tax is deductible from payments in respect of National Savings Scheme When and how tax is deductible on payments on account of repurchase of units of Mutual Funds or UTI When tax is deductible from commission, etc., on sale of lottery tickets When and how to deduct tax at source from commission or brokerage When and how tax is deductible from rent When and how tax is deductible from payment on transfer of certain immovable properties under section 194-IA When and how tax is deductible from rent by certain individuals/HUFs under section 194-IB When and how tax is deductible from payment under joint development agreement under section 194-IC When tax is deductible at source on fees for professional or technical services When tax is deductible at source in respect of income from units When and how to deduct tax at source from payment of compensation on acquisition of certain immovable property When and how tax is to be deducted at source from interest payable on infrastructure debt fund When and how tax is to be deducted at source from income from units of business trust When and how tax is deductible from income in respect of units of investment fund When and how tax is deductible from income in respect of investment in securitization fund When and how tax is to be deducted by an Indian company from interest to a non-resident/ Foreign Citizen When and how tax is to be deducted from interest on bonds/Government securities under section 194LD When and how tax is deductible on certain payments by individual/HUF When and how tax is deductible on payment of certain amounts in cash When tax is deductible at source in respect of payment by e-commerce operator to e-commerce participants When and how tax is to be deducted in the case of specified senior citizen When and how tax is to be deducted on payment for purchase of goods When and how tax is to be deducted at source from other sums When tax is deductible at source from any income payable to non-resident unitholders When and how tax is deductible from units or long-term capital gain under section 196B When tax is deductible from income or long-term capital gain from foreign currency bonds/Global Depository Receipts When tax is deductible at source from income of Foreign Institutional Investors from securities What are other points for consideration Tax collection at source

584 585 585 587 587 588 588 589 589 589 590 590 591 591 591 593 593 594 594 594 595 595 596 596 596 597 598 598 599 600 600 600 601 601 607

Interest payable by assessee/Government

When interest becomes payable by assessee Interest payable to assessee Procedure to be followed in calculation of interest Is it possible to reduce/waive interest Is it possible for Chief Commissioner/Director General (Investigation) to reduce penal interest in certain cases Can Central Board of Direct Taxes make relaxation Writ petition - Is it maintainable against levy of interest

612 623 623 623 623 624 624

Contents

xiv PAGE

UNIT 2 : GST

20 401. 402. 403. 404. 405.

21 410. 411. 412. 413. 414. 415. 416. 417. 418. 419.

22 425. 426. 427. 428. 429.

23 435. 436. 437. 438.

24 444. 445. 446. 447. 448. 449. 450.

25 455. 456. 457. 458.

Basic concepts of GST

What is the difference between direct tax and indirect tax What was pre-GST indirect tax structure in India What are different abbreviations used in the book What one should know before beginning study of law regulating GST What are relevant definitions which a beginner should know

625 625 626 626 632

Concept of Supply

What is taxable event What is supply What is the significance of consideration What are activities or transactions which are treated as supply under Schedule II What are activities which are treated as supply under Schedule I even if consideration is absent What are activities given in negative list (neither supply of goods nor supply of services) What is the significance of expression supply made in the course or furtherance of business What is relevant to attract GST - Supply by a person or supply by a taxable person What are different types of supply Problems on supply

636 637 639 641 648 650 652 652 653 655

Levy of GST

What is the basis of charge of GST How GST is levied in the case of inter-State supply How GST is levied in the case of intra-State supply What are GST rates notified for supply of various goods What are GST rates notified for supply of various services

661 661 662 663 668

Exemptions from GST

Power to grant exemption - How to exercise What are exempted goods under exemption notification What are services given in exemption notification Problems on exemption notifications

678 678 681 695

Place of supply

Why one should find out location of supplier and place of supply Location of supplier of goods - How to find out Location of supplier of services - How to find out Location of recipient of services - How to find out How to find out place of supply of goods How to find out place of supply of services Problems on place of supply

711 711 711 712 712 713 722

Time of supply

Time of supply - How to determine and its significance What are the rules for determination of time of supply of goods What are the rules for determination of time of supply of services How to find out time of supply in case of change in GST rate

726 727 731 734

Contents PAGE

26 464. 465. 466. 467. 468. 469. 470. 471. 472. 473. 474. 475. 476.

27 481. 482. 483. 484.

28 492. 493. 494. 495. 496. 497. 498. 499. 500. 501.

29 511. 512. 513. 514. 515. 516. 517. 518. 519.

30 521. 522. 523.

Value of taxable supply

What are different methods of calculation of value of taxable supply When value of supply shall be the transaction value How to determine value of supply when valuation under aforesaid provisions is not possible How to determine value of supply where the consideration is not wholly in money How to determine value of supply between distinct persons or related person How to determine value of supply of goods made or received through an agent How to determine value of supply of goods/services based on cost What is mode for determination of value of supply under rule 31 How to determine value of certain supplies given under rule 32 How to determine value of supply of services in the case of pure agent What are other modes of determination of value of taxable supply Rate of exchange of currency - How to determine Value of supply inclusive of GST - How to determine taxable value

738 739 742 742 743 744 744 744 744 747 748 749 749

Reverse charge mechanism

What is reverse charge mechanism When reverse charge mechanism is applicable When reverse charge mechanism is applicable on supply by unregistered person to registered person Problems on reverse charge mechanism

751 751 754 755

Input tax credit

What one should know before beginning study of input tax credit provisions What are conditions for taking input tax credit How input tax credit is allowed for payment of CGST, SGST, UTGST and IGST Apportionment of credit - How to determine What is the mode of computation of input tax credit pertaining to capital goods and reversal thereof What is the mode of distribution of credit by Input Service Distributor (ISD) What is the mode of claiming input tax credit by a banking company What is the mode of availability of credit in special circumstances under section 18 How to take input tax credit in respect of inputs/capital goods sent for job work Problems on input tax credit

760 761 769 772 774 775 775 776 780 781

Composition Scheme and Alternative Composition Scheme

Is there any threshold limit for small taxpayers What is composition levy What are the conditions which one has to satisfy What are specified GST rates under Composition Scheme What are other relevant considerations which one has to keep in mind Problems on Composition Scheme What is Alternative Composition Scheme for small service providers What are salient features of Alternative Composition Scheme What are special features for GST payments under Alternative Composition Scheme

792 792 792 795 797 798 801 801 803

Registration

What is the significance of registration Who is liable for registration under GST What is the procedure for registration

806 806 812

Contents

xvi PAGE

31 531. 532. 533. 534. 535. 536. 537. 538. 539. 540. 541. 542. 543. 544.

32 551. 552. 553. 554. 555. 556. 557. 558. 559. 560. 561. 562. 563. 564.

33 570. 571. 572. 573.

34 581.

Tax invoice, credit and debit notes

What is invoice under GST What is importance of tax invoice under GST When tax invoice/bill of supply be issued by a registered person What are the contents of tax invoice What are the contents of bill of supply What are the contents of receipt voucher What are the contents of refund voucher What are the contents of payment voucher What are the contents of revised tax invoice What are the provisions regarding tax invoice in special cases given under rule 54 What are provisions of transportation of goods without issue of invoice What are provisions pertaining to collection of tax and its indication in invoice What are credit and debit notes Problems on tax invoice, credit and debit notes

821 821 821 822 826 827 827 828 828 829 830 831 831 832

Returns, tax payment and interest

What are the basic features of GST returns mechanism What are different GST returns What is matching, reversal and reclaim of input tax credit What is electronic liability ledger What is electronic credit ledger What is electronic cash ledger What are different assessments under GST When interest and late fee are applicable under GST When a person is liable for penalty under GST What is the significance of national anti-profiteering authority in GST What are the provisions regulating e-way bill in GST What are the provisions regulating e-commerce What is the mechanism of tax deduction at source (TDS) under GST What are provisions regulating audit in GST

836 841 847 848 849 850 851 852 854 855 857 862 865 867

Provisions governing Real Estate Services

What one should know before beginning study of GST law pertaining to real estate services What are important definitions What are GST provisions regulating real estate projects with effect from April 1, 2019 What is GST on transfer of development rights (TDR), FSI, upfront amount in real estate transactions

869 870 871 878

Problems on GST

881

xvii

Contents PAGE

APPENDIX

Tax rates

APPENDIX

Questions set for CA (Intermediate) Examinations and Answers

910

APPENDIX

Depreciation rates for power generating units

894

1061

APPENDIX

Answers to unsolved exercises

1062

CHAPTER 5

Income under the head Income from house property and its computation

his Chapter deals with income which falls under the head Income from house property . While the scope of the income charged under this head is defined by section 22, the computation of income falling under this head is governed by sections 23 to 27. All the provisions having a bearing on tax treatment of income from house property are explained in this Chapter.

nn WHAT IS THE BASIS OF CHARGE [SEC. 22] 66. Income is taxable under the head Income from house property if the following three conditions are satisfied : Condition 1

The property should consist of any buildings or lands appurtenant thereto.

Condition 2

The assessee should be owner of the property.

Condition 3

The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax.

Unless, therefore, all the aforesaid conditions are satisfied, the property income cannot be charged to tax under the head Income from house property . To put it differently, if all the aforesaid conditions are satisfied, property income is taxable under section 22 under the head Income from house property . It makes no difference if the assessee is a company which has been incorporated with the object of buying and developing landed properties. Provisions illustrated The following illustrations are given to have better understanding 1. X owns a building. It is given on rent. Income of the property is taxable under the head Income from house property , as the above-noted three conditions are satisfied. 2. Y owns a building. It is used by him for carrying on a business or he uses the building as his office/factory/godown. In this case, no income is taxable under the head Income from house property , as Condition 3 is not satisfied.

66.1 Property consisting of any buildings or lands appurtenant thereto - The property should consist of any buildings or land appurtenant thereto. Rental income of a vacant plot (not appurtenant to building) is not chargeable to tax under the head Income from house property , but is taxable either under the head Profits and gains of business or profession or under the head Income from other sources , as the case may be. Building - The word building is wide enough to include residential houses (whether let out or self-occupied), building let out for office use, or for storage or for use as factory. Even music halls, dance halls, lecture halls and other public auditoriums are buildings . Land appurtenant thereto - The appurtenant lands in respect of a building may be in the form of approach roads to and from public streets, compounds, courtyards, backyards, playgrounds, etc. It also includes car-parking spaces, roads connecting one department with another department, playgrounds for the benefits of employees, etc. 66.2 Assessee should be owner of the property - Income is taxable under the head, Income from house property only if the assessee is the owner of a house property : 173

Para 66.2 p

Income from house property

174

The word owner includes a legal owner as well as deemed owner.

For the purpose of section 22, owner may be an individual, HUF firm, company, co-operative society or association of persons, etc. p

Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income. p

It is not necessary that ownership should extend to the site on which building stands as well as the superstructure. p

66.2-1 INCOME FROM SUBLETTING IS NOT TAXABLE UNDER SECTION 22 - Income from subletting is not taxable as income from house property†. Provisions illustrated X owns a house property. He lets it out to Y for 3 years (rent being Rs. 10,000 per month). Y sublets it to Z on monthly rent of Rs. 40,000. Rental income of X is taxable under the head Income from house property . Since Y is not the owner of the house, his income is not taxable as under the head Income from house property , but is taxable as business income under section 28 or as income from other sources under section 56.

66.2-2 DEEMED OWNER - Besides the legal owner, section 27 provides that the following persons are to be treated as deemed owner of house property for the purpose of charging tax on annual value under the head Income from house property : 66.2-2a TRANSFER TO SPOUSE OR MINOR CHILD - If an individual transfers a house property without adequate consideration to his/her spouse or his/her minor child, the transferor is deemed as owner of the property. This rule is, however, not applicable, if an individual transfers a house property to his/her spouse under an agreement to live apart or to his or her minor married daughter. Provisions illustrated The following illustrations are given to have better understanding 1. X, an individual, owns a house property. On April 1, 2021, he transfers the property without any consideration to his wife. Rental income is received by Mrs. X after April 1, 2021. However, for the purpose of charging tax on rental income, X will be deemed as owner of the property. Consequently, income would be taxable in the hands of X. 2. Y gifts Rs. 10,00,000 to Mrs. Y. Mrs. Y purchases a house property out of the gifted money. In this case, the aforesaid provisions are not applicable, as Y has transferred a sum of money to his wife who has purchased a property out of the gifted amount (he has not transferred a house property). Consequently, Y will not be deemed as owner of the property. In such a case, income of the property would be computed in the hands of Mrs. Y (as she is the owner of the property) and the income so calculated will be included in the income of Y under the provisions of section 64(1) [see para 123].

66.2-2b HOLDER OF IMPARTIBLE ESTATE - The holder of impartible estate is deemed as owner of the property. Provisions illustrated X is one of the ex-Rulers of a former princely state. He has divided all his properties amongst his three sons. However, he could not transfer a building, which is occupied by a temple and which is given, as per family convention, to his eldest son. All the three brothers along with other family members have right to enjoy the benefit of the property. Property is given to the eldest son as it cannot be divided amongst the three brothers as per the family convention. The eldest son is not the beneficial owner of the property. In other words, he holds the property as a trustee on behalf of his younger brothers. For the purpose of section 22, the eldest son, as holder of impartible estate , is deemed as owner of the property.

66.2-2c PROPERTY HELD BY A MEMBER OF CO-OPERATIVE SOCIETY/COMPANY/AOP - A member of co-operative society, company or other association of persons to whom a building (or a part thereof) is allotted or leased under the house building scheme of the society, company or association, is treated as deemed owner of such property. Provisions illustrated A flat is allotted by a co-operative group housing society to X, one of its members under the house building scheme of the society. X is deemed as owner of the property for the purpose of section 22 (although under the general law the property is owned by the co-operative society).

66.2-2d A PERSON WHO HAS ACQUIRED A PROPERTY UNDER A POWER OF ATTORNEY TRANSACTION - If a person has acquired a property under a power of attorney transaction by satisfying the conditions of section 53A of the Transfer of Property Act, he is deemed as owner of the property, although he may not be the registered owner of the property. For exception, see para 66.2-2e.

175

Applicability of section 22 in certain typical cases

Para 66.4

Section 53A of the Transfer of Property Act requires the following conditions : Condition 1

There is an agreement in writing between the purchaser and the seller.

Condition 2

The purchaser has paid the consideration or he is ready to pay the consideration (if there is no consideration as in the case of gift, then section 53A of the Transfer of Property Act is not applicable).

Condition 3

The purchaser has taken the possession of the property.

If the aforesaid three conditions are satisfied, the purchaser becomes the deemed owner of the property for the purpose of income-tax, even if he is not the registered owner of the property. Provisions illustrated X enters into a written agreement to purchase a property from Y for Rs. 25,00,000. He has paid the consideration and taken possession of the property. The sale deed is yet to be registered. He becomes deemed owner of the property for the purpose of paying tax on rental income, although he is not the registered owner of the property.

66.2-2e A PERSON WHO HAS ACQUIRED A RIGHT IN A BUILDING UNDER SECTION 269UA(f) - If a person acquires a right in a building by virtue of a transaction which is referred to in section 269UA(f), then he is deemed as owner of the property. Broadly speaking, section 269UA(f) covers the case of taking a property on lease for a term of not less than 12 years (whether fixed originally or there is a provision for extension of term and the aggregate period is not less than 12 years). This provision of deemed ownership does not cover any right by way of a lease from month to month or for a period not exceeding one year. Provisions illustrated The following illustrations are given to have better understanding 1. X owns a property. It is given on lease for a period of 12 years to Y, lease rent being Rs. 40,000 per month. As the period of lease is not less than 12 years, Y becomes deemed owner of the property. 2. A owns a property. It is given on lease for a period of 6 years to B, lease rent being Rs. 20,000 per month. B has a right to get renewal of lease for further period of 6 years after the expiry of lease. In this case, the aggregate period of lease is not less than 12 years. Therefore, B is deemed as owner of the property. 3. C owns a property, it is given on lease to D for a period of one month, rent being Rs. 10,000. D has a right to get renewal of the lease subject to the condition that every time it will be renewed only for a period of one month and such renewal is possible with mutual consent till 2051. In this case, the aggregate period of lease is more than 12 years, but D will not become deemed owner of the property (the property is given on lease from month to month).

66.3 Property should not be occupied by the owner for his own business or profession - Annual value of a house property is not chargeable to tax under the head Income from house property , if the owner uses the property for the purposes of carrying on his business or profession (whose income is chargeable to tax). The reason of this exclusion seems to be that notional rent of property is not allowable as a permissible deduction while computing business income, if a person carries on business or profession in his own house property. p A few examples - A few examples are given below 1. X owns a property. He uses the property as his office, factory or godown. As the property is used for the purpose of carrying on own business or profession, nothing is taxable under section 22. 2. X Ltd. is a manufacturing company. The factory of the company is situated in Andhra Pradesh. Within the factory campus, there is a residential colony having 80 quarters for workers. These quarters are given to the workers for residential purposes. A nominal rent of Rs. 100 per month is recovered from the workers. As the purpose of letting out of residential quarters is to run the business smoothly, the residential quarters will be treated as house property used by the assessee for the purpose of its business. Accordingly, annual value thereof is not chargeable under section 22. Recovery of rent of Rs. 100 per month from the workers will be taken as business receipt. 3. Y Ltd. makes available a few rooms in its factory on nominal rent to the Government for locating a branch of nationalised bank, post office and central excise office for carrying on its business efficiently and smoothly. Nothing is taxable under section 22. Rent collected, being incidental to the business of Y Ltd., is assessable as business income under section 28. 66.4 Applicability of section 22 in certain typical cases - Apart from what is discussed earlier, the following points merit consideration while understanding implications and scope of section 22 : 66.4-1 HOUSE PROPERTY IN A FOREIGN COUNTRY - A resident assessee is taxable under section 22 in respect of annual value of a property situated in a foreign country. A resident but not ordinarily resident or a non-resident is, however, chargeable under section 22 in respect of income of a house property situated abroad, provided income

Para 66.4

Income from house property

176

is received in India during the previous year. If tax incidence is attracted under section 22 in respect of a house property situated abroad, annual value will be computed as if property is situated in India. 66.4-2 DISPUTED OWNERSHIP - If title of ownership of a house property is under dispute in a court of law, the decision about who is owner rests with the Income-tax Department. Thus, mere existence of dispute as to title cannot hold up an assessment even if a suit has been filed. Generally, the person who is in receipt of income or the person who enjoys the possession of a house property as owner, though his claim is disputed, is assessable to tax under section 22. 66.4-3 PROPERTY HELD AS STOCK-IN-TRADE - As a specific head of charge is provided for income from house property, annual value of house property cannot be brought to tax under any other head of income. If three conditions given by section 22† are satisfied, rental income of a house property is taxable under the head Income from house property . This rule is applicable even if the property is held by the owner as his stock-in-trade. 66.4-4 TREATMENT OF COMPOSITE RENT - Apart from recovering rent of the building, in some cases, the owner gets rent of other assets (like furniture) or he charges for different services provided in the building (for instance, charges for lift, security, air conditioning, etc.). The amount so recovered is known as composite rent . The tax treatment of the composite rent is as follows 66.4-4a WHERE COMPOSITE RENT INCLUDES RENT OF BUILDING AND CHARGES FOR DIFFERENT SERVICES (LIKE LIFT, AIR CONDITIONING) - If the owner of a house property gets a composite rent for the property as well as for services rendered to the tenants, composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual value under section 22. The amount which relates to rendition of the services (such as electricity supply, provision of lifts, supply of water, arrangement for scavenging, watch and ward facilities, etc.) is charged to tax under the head Profits and gains of business or profession or under the head Income from other sources . Provisions illustrated The following illustrations are given to have better understanding 1. X owns a property. It is given on rent to Y. Y annually pays Rs. 1,00,000 as rent of the property and Rs. 20,000 for different services like lift, security, air-conditioning, etc. In this case, Rs. 20,000 is not taxable in the hands of X as income from house property. Rs. 20,000 would be taxed in the hands of X after deducting his actual expenditure for providing different services (lift, security, air-conditioning, etc.) as income from other sources or as business income. 2. A owns a property. It is given on rent to B. B annually pays Rs. 1,50,000 as rent of the building as well as the charges for different services (like lift, security, etc.) provided by A. In this case, one has to split up the annual payment of Rs. 1,50,000 into rent of the building and charges for different services. The amount, which relates to rendition of the services (after deducting actual expenditure) is taxable either as business income or as income from other sources. The sum, which is attributable to the use of the property, is to be assessed in the form of annual value under section 22 under the head Income from house property . This rule is applicable even if it is difficult to split up the annual payment of Rs. 1,50,000. In other words, in such a case it is not legally correct to assess the entire amount of Rs. 1,50,000 (less expenditure) as business income or as income from other sources.

66.4-4b WHERE COMPOSITE RENT IS RENT OF LETTING OUT OF BUILDING AND LETTING OUT OF OTHER ASSETS (LIKE FURNITURE) AND - If there is letting of machinery, plant and furniture and also letting of the building and the two lettings are inseparable (in the sense that letting of one is not acceptable to the other party without letting of the other), then such income is taxable either as business income or income from other sources. This rule is applicable even if sum receivable for the two lettings is fixed separately.

THE TWO LETTINGS ARE NOT SEPARABLE

Provisions illustrated The following illustrations are given to have a better understanding 1. X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 5,00,000 (it includes rent of building and rent of air-conditioner and furniture). In this case, letting of lecture hall is not separable from the letting of airconditioner/furniture. This income (after excluding expenditure) is taxable as business income or as income from other sources. 2. X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 3,00,000 for building and Rs. 2,00,000 as rent of air-conditioner and furniture. In this case, letting of lecture hall is not separable from the letting of air-conditioner/ furniture. This income (after excluding expenditure) is taxable as business income or as income from other sources. This rule is applicable even if from the agreement one can find out rent of building and rent of air-conditioner/furniture separately.

66.4-4c WHERE COMPOSITE RENT IS RENT OF LETTING OUT OF BUILDING AND LETTING OUT OF OTHER ASSETS AND THE TWO LETTINGS ARE SEPARABLE - If there is letting out of building and letting of other assets and the two lettings are separable (in † See para 66.

177

Gross annual value

Para 68.1

the sense that letting of one is generally acceptable without letting out of the other; for instance letting out of building along with car), then income from letting out of building is taxable under the head Income from house property and income from letting out of other assets is taxable either as business income or income from other sources. This rule is applicable even if the assessee receives composite rent from his tenant for two lettings. Provisions illustrated X gets Rs. 20,000 per month as rent from Y for letting out of a building and a car [the two lettings are separable in the sense that Y was given an option to take on rent either the building (at Rs. 16,000) or the car (at Rs. 4,000) or both]. The rent of the building is taxable under the head Income from house property and the rent of car is taxable either as business income or income from other sources.

66.4-5 WHEN A HOUSE PROPERTY IS OWNED BY CO-OWNERS [SEC. 26] - If a house property is owned by two or more persons, then such persons are known as co-owners. If respective shares of co-owners are definite and ascertainable, the share of each such person (in the computed income of property) shall be included in his total income. It may be noted that co-owners are not taxable as an association of persons [for detailed discussion, see problem 73-P1]. 66.4-6 PRINCIPLE OF MUTUALITY † AND SECTION 22 - Tax levied under section 22 is tax on income from house property and it is not a tax on house property. A club owns a house property and it provides recreational and refreshment facilities exclusively to its members and their guests. Its facilities are not available to non-members. The club is run on no profit no loss basis. The members pay for all their expenses and are not entitled to any share in the profit. Surplus, if any, is used for maintenance and development of the club. The business of club is governed by principle of mutuality. It is not only the surplus from the activities of the business of the club that is excluded from the levy of income-tax, even the annual value of the club s house property as contemplated in section 22 will be outside the purview of the levy of income-tax Chelmsford Club v. CIT [2000] 109 Taxman 215 (SC).

nn ➠ WHEN PROPERTY INCOME IS NOT CHARGED TO TAX 67. In the following cases, rental income is not charged to tax : a. income from farm house [sec. 2(1A)(c) read with sec. 10(1)] ; b. annual value of any one palace of an ex-ruler [sec. 10(19A)] ; c. property income of a local authority [sec. 10(20)] ; d. property income of an approved scientific research association [sec. 10(21)] ; e. property income of an educational institution and hospital [sec. 10(23C)] ; f. property income of a trade union [sec. 10(24)] ; g. house property held for charitable purposes [sec. 11] ; h. property income of a political party [sec. 13A] ; i. property used for own business or profession [sec. 22] ; and j. one self-occupied property [sec. 23(2)].

nn WHAT IS THE BASIS OF COMPUTING INCOME FROM A LET OUT HOUSE PROPERTY 68. Income from a let out house property is determined as under : Gross annual value [see para 68.1] Less : Municipal taxes [see para 68.2] Net annual value Less : Deduction under section 24 [see para 68.3] - Standard deduction [see para 68.3-1] - Interest on borrowed capital [see para 68.3-2] Income from house property

Rs. xxxx xxxx xxxx xxxx xxxx xxxx

68.1 Gross annual value [Sec. 23(1)] - Tax under the head Income from house property is not a tax upon rent of a property. It is tax on inherent capacity of a building to yield income. The standard selected as a measure of the income to be taxed is annual value .

†For principle of mutuality, kindly refer to para 6.1-1.

Para 68.1

Income from house property

178

Gross annual value is determined as follows Step I

Find out reasonable expected rent of the property [see para 68.1-1]

Step II

Find out rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy [see para 68.1-2]

Step III

Find out which one is higher amount computed in Step I or Step II.

Step IV

Find out loss because of vacancy

Step V

Step III minus Step IV is gross annual value [see para 68.1-3]

Where the house property is held as stock-in-trade and it is not let during the whole or any part of the previous year, the annual value of such property (or part thereof) shall be taken as nil. However, this concession is available only for a period up to 2 years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority. 68.1-1 STEP I - FIND OUT REASONABLE EXPECTED RENT [SEC. 23(1)(a)] - Reasonable expected rent is deemed to be the sum for which the property might reasonably be expected to be let out from year to year. In determining reasonable rent, several factors have to be taken into consideration, such as, location of the property, annual ratable value of the property fixed by municipalities, rents of similar properties in neighbourhood, rent which the property is likely to fetch having regard to demand and supply, cost of construction of the property and nature and history of the property. These factors play a vital role in determining reasonable expected rent of a house property. In a majority of cases, however, expected rent can be determined by taking into consideration the following factors : a. municipal valuation of the property [see para 68.1-1a]; or b. fair rent of the property [see para 68.1-1b], The higher of (a) or (b) is generally taken as expected rent. If, however, a property is covered by a Rent Control Act, then the amount so computed cannot exceed the standard rent [see para 68.1-1c] determinable under the Rent Control Act. 68.1-1a MUNICIPAL VALUATION - For collecting municipal taxes, local authorities make a periodical survey of all buildings in their jurisdiction. Such valuation may be taken as a strong evidence representing the earning capacity of a building. It cannot, however, be considered to be a conclusive evidence. In some big cities (like Delhi, Mumbai, Chennai and Kolkata) municipal authorities determine net ratable value after deducting 10 per cent of the gross ratable value on account of repairs and an allowance for service taxes (such as sewerage tax and water tax). The net municipal valuation, therefore, requires an adjustment for determining expected rent for incometax purposes. 68.1-1b FAIR RENT OF THE PROPERTY - Fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality. Though two properties cannot be alike in every respect, the evidence afforded by transactions of other parties in the matter of other properties in the neighbourhood, more or less comparable with the property in question, is relevant in arriving at reasonable expected rent. 68.1-1c STANDARD RENT UNDER RENT CONTROL ACTS - Standard rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act. The Supreme Court has observed in a few cases† that a landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent under the Rent Control Act. This rule is applicable even if a tenant has lost his right to apply for fixation of the standard rent. This rule is also applicable to the owner himself. In other words, if a property is covered under the Rent Control Act, its reasonable expected rent cannot exceed the standard rent (fixed or determinable) under the Rent Control Act. 68.1-1d PROVISION ILLUSTRATED - As mentioned earlier, the reasonable expected rent is computed on the basis of three factors, namely a. municipal valuation (MV), b. fair rent of the property (FR); and c. standard rent of the property (SR).

†Sheila Kaushish v. CIT [1981] 7 Taxman 1 (SC), Amolak Ram Khosla v. CIT [1981] 7 Taxman 51 (SC).

179

Gross annual value

Para 68.1

The higher of (MV) and (FR), subject to maximum of (SR) is reasonable expected rent. The example given below illustrates the aforesaid propositions (Rs. in thousand) Municipal value (MV) Fair rent (FR) Standard rent (SR) Reasonable expected rent under Step I [MV or FR whichever is higher, subject to maximum of SR]

A 40 46 NA

B 40 46 45

C 40 46 35

D 40 48 45

E 40 51 63

51*

*Reasonable expected rent cannot exceed the amount of standard rent. Reasonable expected rent can, however, be lower than standard rent see Dr. Balbir Singh v. MCD [1985] 152 ITR 388 (SC). In other words, standard rent is the maximum amount of reasonable expected rent. In the case of E, Rs. 51,000 (being higher of municipal valuation and fair rent) is the reasonable expected rent. Since this amount is lower than the maximum ceiling (i.e., standard rent: Rs. 63,000), it is taken as reasonable expected rent.

68.1-2 STEP II - FIND OUT RENT ACTUALLY RECEIVED OR RECEIVABLE - For the purpose of Step II, rent received or receivable shall be calculated as follows Rent of the previous year (or that part of the previous year) for which the property is available for letting out

xxxx

Less : Unrealised rent if a few conditions are satisfied [see para 68.1-2a]

xxxx

Rent received/receivable before deducting loss due to vacancy

xxxx

The following points should be noted 1. Loss due to vacancy shall not be deducted from the computation of rent received/receivable as given above. It shall be deducted under Step IV. 2. Sometimes a tenant pays a composite rent of property as well as certain benefits provided by the landlord. To determine rent received/receivable, composite rent must be disintegrated and it is only that part of it attributable to the let out of property which would form the basis for the aforesaid calculation. 3. Occupier s (i.e., tenant s) share of municipal tax realised from the tenant cannot be added to actual rent received/receivable, as it is the occupier s duty to pay municipal tax CIT v. Gillanders Arbuthnot & Co. Ltd. [1983] 142 ITR 598 (Cal.). 4. If the tenant has undertaken to bear the cost of repairs, the amount spent by the tenant cannot be added to rent received or receivable CIT v. Parbutty Churn Law [1965] 57 ITR 609 (Cal.). 5. A non-refundable deposit will be included in rent received or receivable on pro rata basis. 6. A refundable deposit cannot be included in rent received or receivable. 7. Advance rent cannot be rent received/receivable of the year of receipt. 8. Commission paid by the owner of a property to a broker for rental income is not deductible. 9. If maintenance charges are recovered from the tenant by a service provider (and not by the landlord), such maintenance charges cannot be added to actual rent received/receivable. Conversely, if maintenance charges are collected by the landlord, it shall be excluded from actual rent received/receivable in order to calculate rent of the property. 68.1-2a WHEN UNREALISED RENT SHALL BE EXCLUDED [EXPLN. TO SEC. 23(1)] - Unrealised rent (which the owner could not realise) shall be excluded from rent received/receivable only if the following conditions are satisfied 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; and 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. 68.1-3 COMPUTATION WITH THE HELP OF ILLUSTRATIONS - To have better understanding, the following problems are given Problems 68.1-3P1 X, Y, Z, A and B separately own the following properties

Para 68.1

Income from house property

180 (Rs. in thousand)

Municipal value (MV) Fair rent (FR) Standard rent under the Rent Control Act (SR) Actual rent Unrealized rent (conditions mentioned in para 68.1-2a are satisfied) Period of the previous year (in months) Period during which the property remains vacant

H1 X 105 107 NA 103 1 12 Nil

H2 Y 105 107 88 112 2 12 Nil

H3 Z 105 107 88 86 1 12 Nil

H4 A 105 107 135 114 2 12 Nil

H5 B 105 107 135 97 1 12 Nil

Find out the gross annual value for the assessment year 2022-23. Solution : In this case gross annual value shall be determined as follows (Rs. in thousand) Computation of gross annual value Step I - Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to maximum of SR] Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy Step III - Amount computed in Step I or Step II, whichever is higher Step IV - Loss due to vacancy Step V - Gross annual value is Step III minus Step IV

107

102 107 Nil 107

110 110 Nil 110

85 88 Nil 88

112 112 Nil 112

96 107 Nil 107

68.1-3E1 Find out the gross annual value in the following cases for the assessment year 2022-23

Municipal value (MV) Fair rent (FR) Standard rent under the Rent Control Act (SR) Actual rent

(Rs. in thousand) X

95 96 94 93

60 54 78 106

60 55 79 78

The entire rent is realised. Properties are let out throughout the previous year. Find out the gross annual value for the assessment year 2022-23. 68.1-3P2 X owns a house property (municipal valuation: Rs. 1,45,000, fair rent: Rs. 1,36,000, standard rent: Rs. 1,24,000). It is let out throughout the previous year (rent being Rs. 8,000 per month up to November 15, 2021 and Rs. 14,000 per month thereafter). X transfers the property to Y on January 31, 2022. Find out the gross annual value of the property in the hands of X for the assessment year 2022-23. Solution : Computation of gross annual value Rs. 1,20,833 1,13,333 1,03,333

Municipal value from April 1, 2021 to January 31, 2022 (Rs. 1,45,000 ÷ 12 × 10) (MV) Fair rent from April 1, 2021 to January 31, 2022 (Rs. 1,36,000 ÷ 12 × 10) (FR) Standard rent from April 1, 2021 to January 31, 2022 (Rs. 1,24,000 ÷ 12 × 10) (SR) Step I - Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to maximum of SR] Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy (Rs. 8,000 × 7½ + Rs. 14,000 × 2½) Step III - Amount computed in Step I or Step II, whichever is higher Step IV - Loss due to vacancy

1,03,333

Step V - Gross annual value is Step III minus Step IV

1,03,333

95,000 1,03,333 Nil

68.1-3E2 In problem 68.1-3P2, find out gross annual value in the hands of Y for the assessment year 2022-23. 68.1-3P3 Find out the gross annual value in the case of the following properties let out throughout the previous year for the assessment year 2022-23

181

Gross annual value

Para 68.1 (Rs. in thousand)

Municipal value (MV) Fair rent (FR) Standard rent under the Rent Control Act (SR) Annual rent Unrealised rent of the previous year 2021-22 which could not be realised and conditions of rule 4 are satisfied [see para 68.1-2a] Loss due to vacancy

X 60 68 62 67

Y 60 68 62 67

Z 60 68 70 73

A 112 117 115 121

B 112 117 115 110

2 1

6 1

5 1

50 1

40 -

Solution : Step I - Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to maximum of SR] Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy Step III - Amount computed in Step I or Step II, whichever is higher Step IV - Loss due to vacancy

115

65 65 1

61 62 1

68 68 1

71 115 1

70 115 -

Step V - Gross annual value is Step III minus Step IV

114

115

The following points should be noted 1. Unrealised rent shall be deducted from rent received/receivable only if conditions of rule 4 are satisfied [see para 68.1-2a]. Conversely, if these conditions are not satisfied, then unrealised rent shall not be deducted from rent received or receivable. 2. If the conditions of rule 4 are satisfied, unrealised rent of the current previous year is deductible. In other words, unrealised rent of the earlier year(s) is not deductible. 68.1-3E3 Recalculate gross annual value in problem 68.1-3P3 after taking into consideration the following additional information 1. In the case of X, the defaulting tenant has not vacated the property, nor have steps been taken to compel the tenant to vacate the property. 2. In the case of Y, the defaulting tenant has occupied another property of Y. 3. Z has not taken any step to institute legal proceedings for the recovery of unpaid rent, though Z agrees that legal proceeding will not be useless. 4. A has rented out another property owned by him to defaulting tenant with effect from March 1, 2022. 5. B satisfies all the conditions of rule 4. 68.1-3P4 Find out the gross annual value in the case of the following properties for the assessment year 2022-23 (there is no unrealised rent) (Rs. in thousand) Municipal value (per annum)(MV) Fair rent (per annum) (FR) Standard rent under the Rent Control Act (per annum) (SR) Annual rent Property remains vacant (in number of month) Loss due to vacancy

X 60 65 59.5 72 (1) 6

Y 61 66 59 57 (1½) 7.125

Z 60 64.5 63 72 (5) 30

A 80 78 85 72 (3) 18

B 80 78 76 NA (12) -

C 140 150 120 96 (10) 80

D 140 150 120 144 (10) 120

59.5

120

Nil

144

72 6

59 7.125

72 30

80 18

76 76

120 80

144 120

51.875

Nil

Solution : Computation of gross annual value Step I - Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to maximum of SR] Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy Step III - Amount computed in Step I or Step II, whichever is higher Step IV - Loss due to vacancy Step V - Gross annual value is Step III minus Step IV

68.1-3E4 Recalculate the gross annual value in the case of A if his property remains vacant throughout the previous year 2021-22 and, consequently, the figure of annual rent is not available. Also recalculate gross annual value in the cases of C and D if their properties remain vacant for one month only.

Para 68.2

Income from house property

182

68.1-3P5 Find out the gross annual value in the following cases for the assessment year 2022-23 (there is no unrealised rent)

Municipal value (per annum) (MV) Fair rent (per annum) (FR) Standard rent under the Rent Control Act (per annum) (SR) Rate of rent - old tenant (from April 1, 2021 to June 30, 2021) (per month) - new tenant (from July 1, 2021 to December 31, 2021) (per month) Period when the property remains unoccupied because suitable tenant was not available Actual rent received/receivable (if there is no vacancy) Loss due to vacancy

X Rs.

Y Rs.

61,000 1,08,000 60,000

61,000 30,000 60,000

5,000 9,000 January 1, 2022 to March 31, 2022 96,000 27,000

2,000 2,500 January 1, 2022 to March 31, 2022 28,500 7,500

60,000

96,000 96,000 27,000 69,000

28,500 60,000 7,500 52,500

68.1-3E5 In problem 68.1-3P5, assume that the property of X remains vacant throughout the previous year 2021-22. However, the property of Y remains vacant from April 1, 2021 to January 31, 2022 and it is let out from February 1, 2022 onwards (rent being Rs. 10,000 per month). Recalculate the gross annual value for the assessment year 2022-23 (other figures remain the same). 68.1-3P6 Find out the gross annual value in respect of the following properties for the assessment year 2022-23 (Rs. in thousand) Municipal value (MV) Fair rent (FR) Standard rent (SR) Actual rent if property is let out throughout the previous year 2021-22 Unrealised rent of the previous year 2021-22 Unrealised rent of the previous year 2020-21 Period when the property remains vacant (in number of months) Loss due to vacancy

140 145 142 168 14 3 (½) 7

180 185 175 168 42 4 (1) 14

180 185 175 168 1 5 (1) 14

140 145 142 168 70 6 (3) 42

231 262 241 252 42 7 (5) 105

142

175

142

241

154 154 7

126 175 14

167 175 14

98 142 42

210 241 105

147

161

100

136

Solution : Computation of gross annual value Step I - Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to maximum of SR] Step II - Rent received/receivable after deducting unrealized rent of the current previous year but before adjusting loss due to vacancy (unrealized of earlier years is not considered) Step III - Amount computed in Step I or Step II, whichever is higher Step IV - Loss due to vacancy Step V - Gross annual value is Step III minus Step IV

68.1-3E6 In problem 68.1-3P6 recalculate the gross annual value in the case of A if property is let out (rent being Rs. 48,000 per annum) only for 10 months, vacant for 2 months and rent of 4 months could not be realised (other figures remain the same).

68.2 Deduct municipal taxes - From the gross annual value computed above, deduct municipal taxes (including service taxes) levied by any local authority in respect of the house property. Municipal taxes are deductible only if (a) these taxes are borne by the owner, and (b) are actually paid by him during the previous year. Municipal taxes, levied by local authority but not paid by the assessee during the previous year, are not deductible. If property is situated in a foreign country, municipal taxes levied by foreign local authority are deductible (if such taxes are paid by the owner). The remaining amount left after deduction of municipal taxes is net annual value.

183

Deduction u/s 24

Para 68.3

68.3 Deduction under section 24 - The following two deductions are available under section 24 a. standard deduction [see para 68.3-1] ; and b. interest on borrowed capital [see para 68.3-2]. The list of allowance of section 24 is exhaustive Indian City Properties v. CIT [1965] 55 ITR 262 (Cal.), CIT v. H.G. Gupta & Sons [1984] 149 ITR 253 (Delhi). In other words, no other deduction can be claimed. For instance, no deduction can be claimed in respect of expenses on insurance, ground rent, land revenue, repairs, collection charges, electricity, water supply, salary of liftman, etc. 68.3-1 STANDARD DEDUCTION [SEC. 24(a)] - 30 per cent of net annual value is deductible irrespective of any expenditure incurred by the taxpayer. 68.3-2 INTEREST ON BORROWED CAPITAL [SEC. 24(b)] - Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. The following points should also be kept in view : p If capital is borrowed for the purpose of purchasing a plot of land, interest liability is deductible even if construction is financed out of own funds. p Interest on borrowed capital is deductible on accrual basis. It can be claimed as deduction on yearly basis, even if the interest is not actually paid during the year. p Deduction is available even if neither the principal nor the interest is a charge on property. p Interest on unpaid interest is not deductible. p No deduction is allowed for any brokerage or commission for arranging the loan. p Interest on a fresh loan, taken to repay the original loan raised for the aforesaid purposes, is allowable as deduction Circular No. 28, dated August 20, 1969. This rule is applicable even if the first loan was interest-free loan. p Any interest chargeable under the Act, in the hands of recipient and payable out of India, on which tax has not been paid or deducted at source, and in respect of which there is no person who may be treated as an agent, is not deductible, by virtue of section 25, in computing income chargeable under the head Income from house property . p Interest on borrowed capital (according to rules given in this para and para 68.3-2a) is deductible fully without any maximum ceiling (in the case of a let out property). p Transaction of allotment of a property to an assessee on instalment basis does give rise to relationship of borrower and lender between the assessee and the estate officer and as such interest paid by the assessee on instalments constitutes interest on borrowed capital. 68.3-2a INTEREST OF PRE-CONSTRUCTION PERIOD - Interest payable by an assessee in respect of funds borrowed for the acquisition or construction of a house property and pertaining to a period prior to the previous year in which such property has been acquired or constructed, to the extent it is not allowed as a deduction under any other provision of the Act, will be deducted in five equal annual instalments, commencing from the previous year in which the house is acquired or constructed. p What is pre-construction period - Interest of pre-construction period is deductible in five equal instalments. The first instalment is deductible in the year in which construction of property is completed or in which property is acquired. For this purpose pre-construction period means the period commencing on the date of borrowing and ending on (a) March 31 immediately prior to the date of completion of construction/date of acquisition or (b) date of repayment of loan, whichever is earlier. Problems ➠ 68.3-2P1 X takes a loan of Rs. 40,000 @ 15 per cent per annum for constructing a house on June 10, 2016. Construction of the house is completed on January 20, 2022. Date of repayment of loan is (a) January 16, 2027, or (b) June 30, 2023, or (c) October 31, 2019. Solution : If date of repayment of loan is January 16, 2027 or June 30, 2023, then pre-construction period ends on March 31, 2021 (being March 31 immediately prior to the date of completion of construction/acquisition). Interest on Rs. 40,000 @ 15 per cent per annum from June 10, 2016 to March 31, 2021 is Rs. 28,849. Amount of instalment deductible in first 5 years is Rs. 5,770 (i.e., Rs. 28,849/5). If date of repayment of loan is October 31, 2019, then pre-construction period ends on October 31, 2019 (being March 31, immediately prior to completion of construction or date of repayment of loan, whichever is earlier). Interest on Rs. 40,000 @ 15 per cent per annum from June 10, 2016 to October 31, 2019 comes to Rs. 20,341 (instalment deductible in first 5 previous years being Rs. 4,068). The table given below highlights the interest deductible in different previous years :

Para 69

Income from house property

184 Previous years

If date of repayment of loan is January 16, 2027 : Current year s interest Pre-construction period s interest Total deduction If date of repayment of loan is June 30, 2023 Current year s interest Pre-construction period s interest Total deduction If date of repayment of loan is October 31, 2019 : Current year s interest Pre-construction period s interest Total

Ending on March 31, 2022 Rs.

2022-23

2023-24

2024-25

2025-26

2026-27

2027-28

Rs.

6,000* 5,770 11,770

6,000 5,770 11,770

4,767 Nil 4,767

Nil Nil Nil

6,000* 5,770 11,770

6,000 5,770 11,770

1,479 5,770 7,249

Nil 5,770 5,770

Nil Nil Nil

Nil 4,068 4,068

Nil Nil Nil

Note - Interest is calculated on the basis of number of days. While the day of borrowing is included, the day of repayment of loan is excluded. ➠ 68.3-2E1 [P5.12]** X takes a loan on January 3, 2018 of Rs. 1,60,000 @ 18 per cent per annum for construction of a commercial house property. Construction of the property is completed on July 17, 2021. Loan is repaid on November 30, 2021. Calculate the amount of interest which is deductible for the assessment years 2022-23 and 2023-24.

nn HOW TO COMPUTE TAXABLE INCOME FROM SELF-OCCUPIED PROPERTY 69. Before steps for computation are explained, it would be advisable to highlight the following features which regulate tax incidence on self-occupied properties p A property occupied for own business purposes - Where an assessee uses his property for carrying on any business or profession, no income is chargeable to tax under the head Income from house property . The assessee, in such a case, is not entitled to claim any deduction on account of rent in respect of such house property in computing taxable profits of the business or profession [see para 66.3]. p Own property used for own residential purposes - Where an assessee has occupied his property for own residential purposes, tax treatment is as follows If only one property is used for own residential purposes

It is treated as self-occupied property

If two properties are used for own residential purposes

Two residential properties are treated as self-occupied properties

If more than two properties are used for own residential purposes

Only two houses (according to the choice† of the taxpayer) are treated as self-occupied properties and other house/houses will be treated as deemed to be let out

In the case of deemed to be let out property/properties, taxable income will be calculated in the manner explained in para 68 (gross annual value shall be taken as reasonable expected rent). In the case of two self-occupied properties, treated as such, the procedure for determining taxable income is as follows *Although the construction of the property is completed on January 21, 2022 (i.e., during 2021-22), the interest of the entire financial year 2021-22 is treated as current year s interest. Interest prior to the year 2021-22 (i.e., the year in which construction is completed) is pre-construction period s interest. The same rule is applicable if the construction is completed on March 31, 2022. **The number given in brackets represents a similar solved Problem No. of another book entitled Students Guide to Income-tax - Problems & Solutions , November 2021 edition. This book includes many more solved problems focusing on contemporary issues. †The option should be exercised in such a way that the net income of a taxpayer is reduced to the minimum possible level. Moreover, the option may be changed every year [see problem 69.4-P1 for how to exercise the option in order to reduce the tax bill].

185

Computation of annual value of self-occupied properties

Para 69.1

69.1 Computation of annual value of self-occupied properties - Mode of computation is given below p If a person has occupied one property (or two properties) for his residential purposes, such property (or properties) are treated as self-occupied property (or properties) . Such property (or properties) may fall in any one of the following categories p If a person has occupied more than two properties for his residential purposes, only two properties (selected by the taxpayer) are treated as self-occupied properties and these properties may fall under any of the following categories Different situations

Para No.

If such property is used throughout the previous year for own residential purposes, it is not let out or put to any other use p If such property could not be occupied throughout the previous year because employment, business or profession of the owner is situated at some other place p When a part of the property (being independent residential unit) is self-occupied and the other part is let out p When such property is self-occupied for a part of the year and let out for the other part of the year p

69.1-1 69.1-2 69.1-3 69.1-4

69.1-1 A HOUSE PROPERTY FULLY UTILISED THROUGHOUT THE PREVIOUS YEAR FOR SELF-RESIDENTIAL PURPOSES [Sec. 23(2)(a)] Where the property is in the occupation of the owner for his own residence, the annual value of such house shall be taken to be nil, under section 23(2)(a), if the following conditions are satisfied : Condition 1

The property (or part thereof) is not actually let during whole (or any part) of the previous year.

Condition 2

No other benefit is derived therefrom.

Examples - The following are some of the examples where the above conditions are satisfied 1. X owns a property. Throughout the previous year 2021-22, it is used by him (and his family members) for own residence purposes. No part of the property is let out or put to some other use. 2. Y owns a property. He sells the property on December 1, 2021. Between April 1, 2021 and December 1, 2021 it is used by Y and his family for residential purpose. It is neither let out nor put to any other use. 3. Z purchases a property on June 1, 2021. Since then it is occupied by Z for his residential purposes. Neither it is let out nor it is put to some other use. 4. A owns a house property. During the previous year 2021-22, he retains exclusive control over possession of house owned by him, though he may not be actually present in house, when he is away from it, he is still in constructive possession of his residential house. p Computation of income - In the case of one property (or two properties) used throughout the previous year by the owner for his residential purpose, income shall be determined as follows p

Gross annual value Less: Municipal tax Net annual value Less: Deduction under section 24 Standard deduction Interest on borrowed capital Income from one self-occupied property

Nil Nil Nil Nil Deductible [see para 69.1-1a] xxxx

69.1-1a INTEREST ON BORROWED CAPITAL [SEC. 24(b)] - Interest on borrowed capital [of the current year and preconstruction period] is deductible as explained in para 68.3-2. However, it is deductible in the case of one selfoccupied property (or two self-occupied properties) subject to a maximum ceiling given below p Maximum ceiling if capital is borrowed on or after April 1, 1999 - If the following three conditions are satisfied, interest on borrowed capital is deductible up to Rs. 2,00,000 Condition 1 Condition 2 Condition 3

Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property. The acquisition or construction should be completed within 5 years from the end of financial year in which the capital was borrowed. The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

If an individual/HUF opts for the alternative tax regime under section 115BAC, deduction under section 24(b) (i.e., interest liability pertaining to one or two self-occupied properties) is not available.

Para 69.1

Income from house property

186

The following points should be noted 1. If capital is borrowed for any other purpose (e.g., if capital is borrowed for reconstruction, repairs or renewals of a house property), then the maximum amount of deduction on account of interest is Rs. 30,000 (and not Rs. 2,00,000). 2. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1, 1999 but, if the aforesaid three conditions are satisfied, the higher deduction of Rs. 2,00,000 would be available. 3. There is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part. However, the higher deduction of Rs. 2,00,000 towards interest can be claimed only in relation to that part of the loan which has been taken and utilised for construction/acquisition after April 1, 1999. The loan taken prior to April 1, 1999 will carry deduction of interest up to Rs. 30,000 only (as stated in para given below). p Maximum ceiling in any other case - If the above three conditions [i.e., conditions (1), (2) and (3) (supra)] are not satisfied, then interest on borrowed capital is deductible up to a maximum of Rs. 30,000. In other words, in the following two cases, interest on borrowed capital is deductible up to Rs. 30,000 Case 1 Case 2

If capital is borrowed before April 1, 1999 for purchase, construction, reconstruction, repairs or renewals of a house property. If capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property.

Problems 69.1-1P1 X owns a house property. It is used by him throughout the previous year 2021-22 for his (and his family members) residence. Municipal value of the property is Rs. 1,66,000, whereas fair rent is Rs. 1,76,000 and standard rent is Rs. 1,50,000. The following expenses are incurred by X: repairs: Rs. 20,000, municipal tax : Rs. 16,000, insurance: Rs. 2,000; interest on capital borrowed to construct the property: Rs. 1,66,000; interest on capital borrowed by mortgaging the property for daughter s marriage: Rs. 20,000 (in either case capital is borrowed before April 1, 1999). Income of X from business is Rs. 7,10,000. Find out the net income of X for the assessment year 2022-23. Solution : Rs. Gross annual value Nil Less: Municipal tax Nil Net annual value Nil Less: Interest on borrowed capital (maximum: Rs. 30,000) 30,000† Property income 30,000 Business income 7,10,000 Net income 6,80,000 69.1-1E1 Recompute the income in problem 69.1-1P1 if capital is borrowed (a) for construction of the property on April 1, 1999 and construction is completed on December 2, 1999; or (b) on April 1, 1999 for repairs of the property and repair is completed on December 2, 1999. 69.1-1P2 X owns two residential houses one at Mumbai and another at Bengaluru. These properties are used by X and his family for own residential purposes throughout the previous year (not let out, not put to any other use). Acquisition of these properties was partly financed by taking housing loan from banks. Find out income from these properties for the assessment year 2022-23 under the following different situations (construction in all cases completed within 3-4 years of taking loan) Different situations

Situation 1 Situation 2 Situation 3 Situation 4 Situation 5 Situation 6 Situation 7 Situation 8 Situation 9 Situation 10

When loan was taken 2011-12 2013-14 2012-13 2015-16 1997-98 2016-17 2015-16 2018-19 1997-98 2008-09

Mumbai property Interest liability of the previous year 2021-22 (including pre-construction period interest) Rs. 2,60,000 1,90,000 2,80,000 2,10,000 2,10,000 2,70,000 1,60,000 4,90,000 25,000 1,10,000

If X opts for the alternative tax regime, deduction of Rs. 30,000 will not be available.

When loan was taken 2013-14 2015-16 2010-11 1997-98 2014-15 1999-00 1997-98 1997-98 1997-98 2002-03

Bengaluru property Interest liability of the previous year 2021-22 (including pre-construction period interest) Rs. 3,10,000 1,70,000 90,000 40,000 40,000 20,000 80,000 27,000 21,000 63,000

187

Computation of annual value of self-occupied properties

Para 69.1

Solution : In the case of one or two self-occupied properties, annual value is nil. Interest liability is deductible up to Rs. 30,000. If, however, capital is borrowed on or after April 1, 1999 for acquisition/construction of a property (and a few conditions as given above are satisfied), interest liability is deductible in aggregate up to Rs. 2,00,000. In view of this legal position, computation of deductible interest and income under the head Income from house property will be as follows

Situation 1 Situation 2 Situation 3 Situation 4 Situation 5 Situation 6 Situation 7 Situation 8 Situation 9 Situation 10

Interest deductible for Mumbai property Rs. 2,00,000 1,90,000 2,00,000 2,00,000 30,000 2,00,000 1,60,000 2,00,000 25,000 1,10,000

Interest deductible for Bengaluru property Rs. 2,00,000 1,70,000 90,000 30,000 40,000 20,000 30,000 27,000 21,000 63,000

Aggregate interest deductible under section 24† Rs. 2,00,000 2,00,000 2,00,000 2,00,000 70,000 2,00,000 1,90,000 2,00,000 30,000 1,73,000

Income from two selfoccupied properties Rs. ( ) 2,00,000 ( ) 2,00,000 ( ) 2,00,000 ( ) 2,00,000 ( ) 70,000 ( ) 2,00,000 ( ) 1,90,000 ( ) 2,00,000 ( ) 30,000 ( ) 1,73,000

69.1-1E2 Recompute the taxable income in Situation 10 in the above problem if interest liability of Mumbai property pertains to loan taken by X for the purpose of reconstruction of the property.

69.1-2 A HOUSE PROPERTY, WHICH IS NOT ACTUALLY OCCUPIED BY THE OWNER OWING TO EMPLOYMENT OR BUSINESS/PROFESSION, CARRIED ON AT ANY OTHER PLACE [SEC. 23(2)(b)] - Section 23(2)(b) is applicable if the following conditions are satisfied Condition 1 Condition 2 Condition 3 Condition 4

The taxpayer owns one (or two) house properties, 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 that other place in a building not owned by him. The property (or properties) mentioned at (a) (or part thereof) is not actually let out during whole (or any part of the previous year). No other benefit is derived from the above property (or properties) by the owner.

If the above conditions are satisfied, income from the property (or properties) shall be determined according to the method given in para 69.1-1. 69.1-2a OTHER POINTS - The following points should also be kept in view p Some nexus between the fact of residing in a building not belonging to the assessee and his employment, business or profession must be shown before the benefit of section 23(2)(b) can be availed in respect of residential house which is not occupied by the assessee. Examine the case given below X owns a house but he resides with his father in the same town in a house two miles away. He is a bachelor and, therefore, for his own convenience resides with his father. His own house is lying vacant. Since X has not left his house vacant on account of business compulsion but on account of personal convenience, he will not be entitled to the benefit of section 23(2)(b). Gross annual value in this case cannot be taken as equal to zero. Income from house property shall be calculated as if the house is deemed to be let out. p Section 23(2)(b) would apply in all those cases where officials and dignitaries, under the Constitution of India and even otherwise had to reside in official residences instead of their own residences by reason of their office CIT v. Justice Avadh Behari Rohtagi [1985] 21 Taxman 409 (Delhi). 69.1-3 WHEN A PART OF PROPERTY IS SELF-OCCUPIED AND A PART IS LET OUT - If a house property consists of two or more independent residential units, one of which is self-occupied for own residential purposes and other unit(s) are let out, income is computed as follows 1. Unit self-occupied for residential purpose throughout the previous year (which is not let out nor put to any other use) 2. Let out units 3. Unit self-occupied for residential purpose for a part of year and lying vacant for remaining part because of business, profession or employment, is situated at some other place

See para 69.1-1 See para 68 See para 69.1-2

† Interest on borrowed capital (pertaining to self-occupied properties) is not available, if the assessee opts for the alternative tax regime.

Students Guide To Income Tax Including GST AUTHOR : VINOD K. SINGHANIA, MONICA SINGHANIA PUBLISHER : TAXMANN DATE OF PUBLICATION : DECEMBER 2021 EDITION : 66TH EDITION ISBN NO : 9789393656001 NO. OF PAGES : 1090 BINDING TYPE : PAPERBACK

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Description Taxmann’s flagship publication for Students on Income Tax & GST Law(s) has been designed to bridge the gap between theory and application. This book is written in simple language, explaining the provision of the law in a step-by-step manner – with the help of suitable illustrations, without resorting to paraphrasing of sections and legal jargons. This book is an authentic, up to date & amended textbook on Income Tax & GST for students of CA Intermediate (May/Nov. 22), CS Executive (June/Dec. 22), CMA (June/Dec. 22), B.Com., M.Com., MBA, and other Professional Examinations. The Present Publication is the 66th Edition, updated till 10th November 2021, authored by Dr Vinod K. Singhania & Dr Monica Singhania, with the following noteworthy features: u [Coverage] of this book includes: Unit 1 – Income Taxes Unit 2 – GST u [500+ Solved Problems] and an equal number of unsolved exercises u [Question set for CA (Inter/IPCC) Examination] for the last five years is given along with solutions for theory as well as practical questions Answers to Income Tax problems are solved as per the law applicable for A.Y. 2022-23 GST problems are solved in accordance with law as amended up to 10th November 2021 u [Features] of this book is as follows: u [Self-Learning/Practice Book] Features teach yourself technique enabling students to learn faster u [Analytical Discussions] are included in each para supported by ‘well-thought-out-original-problems’. A unique style of illustrating all complex provisions has been adopted throughout this book u [Every solved problem is followed by an unsolved exercise] for which answers are given at the end of the book u Follows Six-Sigma Approach to achieve the benchmark of ‘Zero-Error’

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