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Prevailing Interest Rate scenario?

A. Floating Interest Rate: 10.00% - 12.00%
B. Fixed Interest Rate: 12.00% - 14.00%

How much do you pay every month?

On the basis of these rates, the monthly installments for a housing loan of Rs 1,00,000 work out as follows:

Interest rate in %
  10.50 10.75 11.00 11.25 11.50
Term Years Rs. Rs. Rs. Rs. Rs.
5 2149 2162 2174 2187 2199
10 1349 1363 1378 1392 1406
15 1105 1121 1137 1152 1168
20 998 1015 1032 1049 1066
25 944 962 980 998 1016

Other fees

Administration Fees: 0.5% or Rs 5,000.00 whichever is less plus Service Tax as applicable.

What security is required?

The loan would be secured by equitable mortgage of the apartment financed by the bank.

Maximum loan

85%-90% of the value of the apartment

 

For the convenience of home owners, Bengal Ambuja would like to bring you information on the latest tax provisions relating to house property.

Is income from house property taxable?

Yes. Income from different heads such as salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources are first determined and then aggregated as total income which is subject to tax at the specified rates.

Who is the owner?

It is the legal owner of the house property who is chargeable to tax in respect of property income. In the following cases as enumerated by Section 27 of the Income Tax Act 1961 space persons are deemed to be owners of the house property for the purpose of computing income from house property:

  • An individual, who transfers house property otherwise than for adequate consideration to his or her spouse (not being a transfer in connection with an agreement to live apart) or to his minor child (not being a married daughter), is treated as deemed owner of the house property.
  • The holder of an impartible estate is treated as deemed owner of the house property.
  • A member of a co-operative society, company or other association of persons, to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association of persons, is treated as deemed owner of such property.
  • A person who comes to have control over the property in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act or by virtue of such transactions as are referred to in Clause (f ) of Section 269UA
    (i.e. taking a property on lease for not less than 12 years) is deemed as owner of such property.

How do you calculate income from house property?

The basis for calculation is the Annual Value which is the inherent capacity of the property to earn income. The legal owner of the house property is taxed on the income determined in terms of its Annual Value.

How is the Annual Value computed?

Annual value is the amount for which the property might reasonably be expected to be let out. Reasonable rent could be the actual rent paid by the tenant, or annual rateable value as fixed by the Municipality, or rent for similar property in the neighbourhood, etc. whichever is higher, subject to standard rent.

What is the Annual Value if the property is occupied by the owner?

When a house is self-occupied and no other benefit therefrom is derived by the owner, the Annual Value is taken as nil. However, where a person is in occupation of more than one house for his own residential purposes, only one house according to his option would be treated as self-occupied. All other houses shall be deemed to be let out and income thereon shall be taxable.

What is the Annual Value of one's own house as distinct from one's work place?

It is quite common for a person to own a house property, say in Kolkata, and work in another place where he stays in a rental accommodation. In such a case, the Annual Value of his own property will be treated as nil, provided that the house is not actually let out and no other benefit therefrom is derived by the owner.

What are the deductions allowed from the Annual Value?

Self occupied:
Where the house property is acquired or constructed after April 1, 1999 with borrowed capital and such acquisition or construction is completed within 3 years from the end of the financial year in which capital was borrowed, interest payable on loan taken for this purpose is allowable up to Rs 1,50,000 in a financial year.

Rented:
The following deductions are permitted:

  • Municipal taxes paid:
  • Standard deduction @ 30% of Net Annual Value
    (i.e. Annual Value minus municipal tax). (Allowed on notional basis, whether incurred or not).
  • Interest: Where capital is borrowed, and the property in question is being acquired or constructed or repaired or reconstructed with such borrowed funds for purpose other than self occupation, interest payable is allowed in full. There is no cap on the quantum of deduction for interest as in the case of self occupied property as stated above.

Is interest attributable to the period prior to construction or acquisition allowed as a deduction?

Yes. It may so happen that money is borrowed earlier and acquisition or construction takes place in any subsequent year. In such cases, interest paid/payable before the final completion of construction or acquisition of the property will be aggregated and allowed in equal instalments over five successive financial years starting with the year in which the acquisition or construction is completed. This facility is however, not allowed for repairs, renewal or reconstruction of the subject property.

Are there any other permissible deductions?

Yes. The following payments are further eligible for deduction from total taxable income under Section 80C, up to a maximum of Rs 1,00,000 per annum:

a) repayment of the principal amount borrowed by the assessee from:

  • The Central Government or any State Government, or
  • Any bank, or
  • The Life Insurance Corporation of India, or
  • The National Housing Bank, or
  • Any public company duly recognised by the concerned authorities carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, or
  • Any co-operative society, where such co-operative society is engaged in the business of financing the construction of houses, or
  • The assessee's employer where such employer is a public company or public sector company, or a university established by law or a college affiliated to such university or local authority or co-operative society.

b) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

Can there be any loss under the head income from house property?

Yes. In respect of self occupied property as the Annual Value is taken as nil, deduction allowed on interest on borrowed capital up to a maximum of Rs 1,50,000 will be the loss under the head income from house property. In respect of let out property there are no restrictions on deducting the full interest payable on borrowed capital and so there can be loss under this head if net income from house property before adjusting interest is lower than interest payable on loan, taken in respect of such house property. Further, loss from one house property can be set-off against income from any other house property.

How is the loss under the head income from house property treated?

This loss can further be set off against income under any other head such as salaries, etc. in the same year. Further, where this loss cannot be fully adjusted against other heads of income in the same year, the balance loss can be carried forward and set-off in subsequent years, subject to a limit of 8 years. However such loss can be set-off only against income from house property.

What are the tax saving provisions relating to capital gains arising on transfer of a residential house?

Capital gain arising from the transfer of a house property is exempt from tax provided the following conditions are satisfied:

  • The house property is a residential house and is transferred by an individual or a Hindu undivided family.
  • The house property whether self-occupied or let-out is a long-term capital asset (i.e. it must be held for a period of more than 36 months before sale or transfer).
  • The assessee has purchased a residential house within one year before or two years after the transfer or has completed construction of a residential house property within three years from date of transfer.
  • If the investment is not made before the due date for furnishing the return of income of the relevant year, then the unutilised amount of capital gain must be deposited in a special bank account in accordance with the Capital Gains Accounts Scheme 1998.
  • The new house should not be transferred within three years of its purchase or construction. If the new house property is transferred, within a period of three years from the date of its purchase or construction, the amount of capital gains arising from it, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of sale of the new house property. It may be noted that for computing long term capital gain on the house property, the assessee shall have the benefit of cost indexation. (Section 54 of Income Tax Act)

Further, under Section 54F of Income Tax Act, capital gain arising on the transfer of any long-term capital asset i.e. an asset held for more than three years (one year in case of shares, debentures, mutual fund and UTI units), can also be neutralised if capital receipts arising from transfer of long term capital assets other than a house property is invested in a house property within the stipulated time. (as specified in point c) subject to following:

  • If the investment is not made before the due date for furnishing the return of income of the relevant year, then the unutilised amount of Net consideration must be deposited in a special bank account in accordance with the Capital Gains Accounts Scheme 1998. If the amount so deposited is not utilised fully for the purchase/ construction of the new house within the stipulated period, the proportionate amount shall be treated as long-term capital gain of the previous year in which the period of three years from the date of transfer of the original asset expires.
  • If the individual sells or transfers the new house within 3 years of its purchase or construction, or if the individual purchases, within a period of two years of the transfer of the original asset, or constructs within a period of three years of transfer of such asset, a residential house other than the new house, than the amount of capital gains arising from the transfer of original asset, which was not charged to tax, will be deemed to be the income by way of long-term capital gains of the year in which new house is transferred or another residential house (other than the new house) is purchased or constructed, as the case may be.

However, if the assessee claims deduction under Section 80C in respect of repayment of loan, and if he transfers the house property before the expiry of five years from the end of the financial year in which possession of such property is obtained, the aggregate amount of the deduction of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.

What is the position under the Wealth Tax Act?

One house or a part of a house belonging to an individual or a Hindu undivided family is not chargeable to Wealth Tax.

 

X takes a loan of Rs 40,000 @ 15% p.a. for constructing a house on June 11, 2000. Construction of the house is completed on January 20, 2006. Date of repayment of loan is (a) January 31, 2010, or (b) June 30 2007, (c) October 31, 2003.

If date of repayment of loan is January 31, 2010 or June 30, 2007 then pre-construction period ends on March 31, 2005 (being March 31 immediately prior to the date of completion of construction/acquisition). Interest on Rs 40,000 @ 15% p.a. from June 1, 2000 to March 31, 2005 is Rs 28,997. Amount of installment deductible in first five years is Rs 5,799 (i.e. Rs 28,997/5).

If date of repayment of loan is October 31, 2003, then pre-construction period ends on October 31, 2003 (being March 31 immediately prior to completion of construction or date of repayment of loan, whichever is earlier). Interest on Rs 40,000 @ 15% p.a. from June 1, 2000 to October 31, 2003 comes to Rs 20,500 (instalment deductible in first 5 previous years being Rs 4,100). The table given below highlights interest deductible in different previous years:

Computation of Tax
  Previous years
Ending on
March 31, 2006
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Rs Rs Rs Rs Rs Rs Rs
If date of repayment of loan is January 31, 2010:
Current year’s interest 6,000* 6,000 6,000 6,000 6,000 5,014 Nil
Pre-construction period’s interest 5,779 5,779 5,779 5,779 5,779 Nil Nil
Total deduction 11,779 11,779 11,779 11,779 11,779 5,014 Nil
If date of repayment of loan is June 30, 2007:
Current year’s interest 6,000* 6,000 1,479 Nil Nil Nil Nil
Pre-construction period’s interest 5,779 5,779 5,779 5,779 5,779 Nil Nil
Total deduction 11,779 11,779 7,278 5,779 5,779 Nil Nil
If date of repayment of loan is October 31, 2003:
Current year’s interest Nil Nil Nil Nil Nil Nil Nil
Pre-construction period’s interest 4,098 4,098 4,098 4,098 4,098 Nil Nil
Total deduction 4,098 4,098 4,098 4,098 4,098 Nil Nil

*Although the construction of the property is completed on January 20, 2006 (i.e. during 2005-06, the interest of the entire financial year 2005-06 is treated as current years interest. Interest prior to the year 2005-06 (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,

 

Mr X purchases a ready apartment in April 2006 for Rs 15,00,000. Fair rent is Rs 10,000 per month. He has taken a loan of Rs 15,00,000 at an interest rate of 10% p.a. from a housing finance company in April, 2005. The interest outgo on the loan for the financial year 2006-2007 is Rs 1,50,000. The principal repayment of loan during 2006-2007 is Rs 1,00,000. In addition, he makes the following expenditure in respect of the house property:

Municipal taxes: Rs 4,000
Repairs: Rs 2,000
Fire insurance premium: Rs 2,500.

The apartment is not let out and no benefit other than self occupation for residential purpose is derived from it. Assuming that the income of X from other sources is Rs 4,50,000, his Taxable Income and Tax for the Assessment Year 2007-08 will be:

Computation of Tax
  Rs
Annual Value (as X has occupied the apartment for self-residence and no other benefit is
derived, annual value of the property would be nil)
NIL
Less: Municipal tax NIL
Net Annual Value NIL
Less: Deduction:
Standard deduction @ 30% of NAV
Interest on borrowed capital:
(on accrual basis)
NIL
1,50,000
Income from House Property:
Income from Other Sources:
(-)1,50,000
4,50,000
Gross Total Income
Less: Deduction U/s 80C
3,00,000
1,00,000
Taxable Income 2,00,000
Income Tax 15,000
Add: Surcharge NIL
Add: Education Cess @ 2% 300
Net Tax Payable 15,300

 

Mr X was allotted a flat under construction in December, 2005 for Rs 20,00,000. The construction of the apartment is completed in April, 2006. It is rented out from April, 2006 to March, 2007at a monthly rent of Rs 15,000. He has taken a loan of Rs 15,00,000 from a housing finance company in December, 2005. The interest outgo on the loan till March, 2006 is Rs 37,500 and a further Rs 1,12,500 from April, 2006 to March, 2007. The principal repayment during 2006-2007 is Rs 1,00,000.

In addition he makes the following expenditure in respect of the house property:
Municipal Taxes: Rs 4,000
Repairs: Rs 2,000

Assuming that the income of X from other source is Rs 2,50,000, his Taxable Income and for Tax the Assessment Year 2007-08 will be:

Computation of Tax
  Rs Rs Rs
Annual Value (15000 x 12)
Less: Municipal Tax
1,80,000
4,000
   
       
Net Annual Value
Less: Standard Deduction @ 30 %
of NAV
  52,800 1,76,000
       
Interest:      
Pre-construction (37,500÷5) 7,500    
Post-construction 1,12,500    
    1,20,000  
Total Deduction     1,72,800
Income from House Property     3,200
Income from other Sources     2,50,000
       
Gross Total Income     2,53,200
Less: Deduction U/s 80C     1,00,000
       
Total Taxable Income     1,53,200
       
Income Tax     5,640
Add: Surcharge     NIL
Add: Education Cess @ 2%     113
Net Taxable Income     5,753

 

What would be the amount of exemption under Section 54 and capital gains chargeable to the tax in respect of the following transactions:

1. X sells a residential house property in Agra for Rs 15,40,000 on April 23, 2006 which was purchased by him on April 20, 1985 for Rs 2,90,000. On June 16, 2006, he purchases a house in Delhi for Rs 12,70,000 for the purpose of residence of his daughter.

2. On July 18, 2007, X sells the house property in Delhi for Rs 16,90,000. Can he claim exemption under Section 54 in respect of transaction (2)?

Computation of Tax
Capital gains in transaction (1) Rs
Sale proceeds 15,40,000
Less: Indexed cost of acquisition [ Rs 2,90,000 X 519÷133] 11,31,654
Capital Gains 4,08,346
Less: Exemption under Section 54 4,08,346*
Capital Gains chargeable to Tax for the Assessment Year 2007-08 Nil
*As X has invested more than Rs 4,08,346 in purchase of a house in Delhi within two years from the transfer of house in Agra, entire amount of Capital Gains will be exempt.  
Capital gains in transaction (2) Rs
Sale proceeds 16,90,000
Less: Cost of acquisition [Rs 12,70,000 being the actual cost minus Rs 4,08,346, being the exemption granted under Section 54 in transaction (I) as the new house in Delhi is sold within three years from the date of purchase].  8,61,654
Short-term Capital Gains 8,28,346

*Exemption under Section 54 cannot be availed because the new house property is sold within 3 years.

 

Mr X owns a residential house at Delhi since 1968 (income is taxable under Section 22). The house is sold by him for Rs 38,90,000 on May 10, 2006 (cost of acquisition: Rs 4,50,000 fair market value on April 1, 1981: Rs 5,10,000). To claim exemption u/s 54, he purchases a residential house property at Ajmer on March 10, 2007 for Rs 1,51,000. On July 16, 2007 he deposits Rs 6,00,000 in a bank account specified for the purpose of section 54.

By withdrawing from the deposit account he purchases a house property at Kota on May 5, 2008 for Rs 3,10,000. Construction of another house at Jaipur is completed by May 9, 2009 entire cost of construction of Rs 1,80,000 is financed by withdrawing from deposit account. The unutilised amount in the deposit account is withdrawn by him after May 10, 2009. Determine the amount of Capital Gains chargeable to Tax.

Computation of Tax
Assessment Year 2007-08 Rs
Sales proceeds 38,90,000
Less: Indexed cost of acquisition (Rs 5,10,000 X 519÷100) 26,46,900
   
Balance 12,43,100
Less: Exemption u/s 54 (i.e. cost of house purchase in Ajmer: 7,51,000
Rs 1,51,000 + amount deposited in deposit account: Rs 6,00,000)
 
Long-term Capital Gain 4,92,100
   
Assessment year 2010-11 [i.e. relevant to the previous year in which 3-year time
limit from the date of sale of house (May 10, 2006) expires]
 
  Rs
Amount of deposit in the bank account on July 16, 2007 6,00,000
Less: Cost of house purchased on May 5, 2008 3,10,000
Cost of constructing another house 1,80,000
   
Long-term Capital Gain 1,10,000

 

Mr X sells non-listed shares in a private sector company on July 10, 2006 for Rs 8,05,000 (cost of acquisition on June 15, 1984: Rs 60,000 expenses on sale: Rs 5,000). On July 10, 2006, he owns one residential house property. To get the benefit of exemption u/s 54F, X deposit on July 30, 2007 Rs 6,00,000 in Capital Gains deposit accounts scheme. By withdrawing from the deposit account he purchases a residential house property at Delhi on July 6, 2008 for Rs 4,80,000. Ascertain

  • the amount of Capital Gain chargeable to Tax for the Assessment Year 2007-08;
  • tax treatment of the unutilised amount;
  • when can he withdraw the unutilised amount; and
  • what X has to do to ensure that exemption

under Section 54F is never taken back.

Computation of Tax
Assessment Year 2006-07 Rs
Sale consideration 8,05,000
Less:  
      Expenses 5,000
      Indexed cost of acquisition [Rs 60,000 X 519÷125] 2,49,120
Balance 5,50,880
Less:  
Exemption under Section 54F [Rs 6,00,000 being the amount deposited in Deposit Account/Rs 8,00,000 being net sale consideration X Rs 5,50,880 being the amount of Capital Gain]
4,13,160
Long-term Capital Gain 1,37,720
   
Notes  
1. In this case, X has not fully utilised the deposit account for acquiring a residential house property. Out of Rs 6,00,000 deposited for acquiring the house, it is utilised to the extent of Rs 4,80,000, Tax treatment of Rs 1,20,000 being the unutilised amount, will be as follows:  
  Rs
Unutilised amount (a) 1,20,000
Net sale consideration (b) 8,00,000
Original Capital Gain (c) 5,50,880
Notional long-term Capital Gain [i.e., (a)/(b) X (c)] 82,632
Effective exemption under Section 54F [i.e. Rs 4,13,160 - Rs 82,632] 3,30,528
  • Rs 82,632 will be chargeable to tax as long-term Capital Gain after the expiry of 3 years from date of transfer of shares (i.e. July 9, 2009). Consequently it will be taxable for the Assessment Year 20010-11.
  • The unutilised amount of Rs 1,20,000 can be withdrawn by X at any time after July 9, 2009.
  • If X sells the new house at Delhi before July 6, 2011, then Rs 3,30,528 (exemption under Section 54F)
    will be taken as long term Capital Gains of the year in which the house is sold.
  • If X purchases any other residential house before July 10, 2008 or constructs any other house (income of which is taxable under Section 22) before July 10, 2009, then Rs 3,30,528 (exemption under Section 54F) will be deemed as long termed Capital Gain of the year in which another house is purchased or constructed.