Jatin Grover

Jatin GroverIncome Tax Act, 1961 allows only 1 house property to be declared as Self occupied while all others are compulsorily required to be declared as rented out. In case of Property which is let out there exists a concept of Deemed Annual Value, i.e first of all Deemed Annual Value is to be calculated, for which first we have to select higher of Municipal Value and Fair Rental Value of the House Property and higher of the two is to be compared with Standard Rent; now the lowest of standard rent and value determined earlier will be considered Deemed Annual Value.

For Eg:- Municipal Value Rs. 1 Lacs, Fair Value Rs. 1.5 Lacs and Standard Value Rs. 1.2 Lacs.

Sol:- Now Deemed Annual Value will be Rs. 1.2 Lacs(Lower of Rs. 1.2 Lacs and Rs. 1.5 Lacs (Rs. 1.5 Lacs being higher of Municipal Vale and Fair Value)

Thereafter if Actual Rent received is lower than Deemed Annual Value, then Deemed Annual Value shall be used to calculate Income under the head House property otherwise Actual Annual Rent will be used.

However in case your House Property remained vacant for a part of the year then Income Tax Provisions allow you to consider Actual Rent received or receivable (For period let out) for calculating Income under the head House Property even if same is less than Deemed Annual Value. This provision is brought to ensure that an assessee is not harassed in cases where he has already lost rent for few months.

For eg:- Municipal Value Rs. 1 Lacs, Fair Value Rs. 1.5 Lacs and Standard Value Rs. 1.2 Lacs. Property let out for 9 months @12000.

Sol:- Value to be considered Rs. 1.08 Lacs (Being Actual Rent Received/receivable for 9 months)

Legal Language supporting above provision to provide benefit to assessee as per Section 23(1)(‘c) is “where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable”.

Now reading the words “property is let and was vacant during the whole” it can be interpreted that in cases where assessee was unable to let out the property for whole of the year then he will be allowed to consider NIL as annual value, further one more interpretation which exists is that in case property remained vacant for complete year then it cannot be said property is let and hence benefit u/s 23(1)(‘c) cannot be taken.

First interpretation does not seems correct as it will result in no difference between Self Occupied house and House which remained vacant for whole of the year, the same has also been ruled by Andhra Pradesh High Court in case of Vivek Jain.

However a contrary judgement has been made by Pune ITAT on the basis that in previous year’s property was let out and from the facts it appeared that assessee has put in his efforts to ensure property is let out. Since it is a litigious matter assessee should put in his efforts to rent out the property and should ensure property is let out for at least 1 month in order to take benefit of Section 23(1)(‘c) without taking any risk of litigation.

Thus in above eg if property let out only for 1 month @Rs. 12000, Value to be considered for the purpose of calculating Income from house property shall be Rs. 12000 only.

{Author is a CA Final Rank holder (AIR 34 – Nov’15) currently working in BPCL and can be reached on jat.grover44@gmail.com or his Linkedin account – ( https://www.linkedin.com/in/ca-jatin-grover-a0aa3923 )}

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3 responses to “House Property Remained Vacant – Check Out How to Calculate Your Income Tax Liability”

  1. R N GUPTA says:

    a nice guidance

  2. Rahul says:

    Very good work Jatin Grover, You are doing good work on your facebook page as well, named as Jatin’s Tax Arena.

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