“SECOND HOUSE PROPERTY HAS A DIFFERENT TAX TREATMENT”


TAX TALK-18.02.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“SECOND HOUSE PROPERTY HAS A DIFFERENT TAX TREATMENT”

Query 1]
I am working in PSU. I have availed Housing Loan in the year 2002 Rs. 5,51,000/- and I had taken the benefit of housing loan (principal amount) installment up to year 2011-12 and also interest benefit under IT Act. Now the said loan is repaid and account closed in Dec-2012. Further, I took new flat and Bank has sanctioned me loan of Rs. 13,43,000/- in the year 2012.  I have already taken the possession of the flat in the month of Dec-2012 and at present the flat is vacant. In this connection please advise me:
1.      Whether I am eligible for deduction of housing loan installment (principal amount for this New A/c) and if yes up to what extent?
2.      Whether I am eligible for interest benefit on this housing loan New A/c? If yes, up to what extent?
3.      In this case, what is the annual value if any?
4.      In financial year 2012-13, which type of IT return is applicable to me?
Opinion:
With many tax payers opting for second house property with the housing loan, the question becomes all the more relevant. The queries on almost similar issues have been very often covered in the earlier issues of Tax Talk. However, considering the increasing relevance & importance, we are elaborating the tax implications in such situations. The tax implication / housing loan benefit for the second house property is not similar & same as applicable to the first house property. The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated hereunder at Point No. 3. The second house property has a different tax treatment under the Income Tax Act-1961. The tax implication in such cases is as under:
1.      One house used by the tax payer for his/her own residence does not yield any taxable income as its annual value could be treated as Nil. Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property could be taken as Nil provided the property is not actually let out.
2.      If taxpayers have two or more houses which are used for own use/ purpose, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to be have to been let out [whether or not actually let out].
3.      ANNUAL VALUE:
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of  (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable to income tax on the basis of its annual value.
4.      Deductions:
From the annual value the following deductions are available under the Income Tax Act: -
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing loan is restricted to Rs. 1,50,000/- p.a., subject to certain other stipulations.
5.      Effectively, if Assessee owns more than one house property & is kept for own use/ purpose,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the
principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘a’ residential house property the income from ....."
The income tax forms for the FY 2012-13 have not yet been notified & I will highlight the form to be used by various class of assessee after the same is notified.

Query 2]
I have some queries regarding the educational institutions. Is it compulsory for all educational institutions to get registered U/s 12A of the Income Tax Act,1961 even if the receipts by them is less than Rs. 1 crore in a year? Whether is it beneficial to get registered?  [J.Agrawal-jyoti_ag@sify.com]
Opinion:
An educational institution established for the purpose of education & eligible for deduction u/s U/s 10 (23C)(iiiab) / 10 (23C) (iiiad) are not compulsorily required to get the registration u/s 12AA for exemption of income as the same is otherwise also eligible under the said section. I am of the view that the institutions in such case should get themselves registered voluntarily u/s 12AA so as to get the benefit even after the receipts crosses Rs. 1 Cr mark.

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