Direct Taxes Code (DTC), 2010, proposed significant changes in the way house property income would be subject to tax, it becomes imperative for investors to take note of the changes and plan their investment decisions accordingly.
The income from letting out a house property will be computed under the head — income from house property. The income from house property will be computed as gross rent less the deductions specified under DTC. Gross rent is the amount of rent received or receivable for the financial year.
One can claim deductions for the amount of tax paid to the local authority, a sum equal to 20% of the gross rent in respect of repair and maintenance of such property, and the amount of any interest paid on loan taken for the purposes of acquisition, construction, repair or renovation of such property; or the interest paid on the loan taken for the purposes of repayment of the loan. There is no restriction on the amount of interest that could be claimed as deduction in case of a let-out property.
Further, any interest in respect of the period prior to the financial year in which the house property has been acquired or constructed can be claimed as deduction in five equal instalments, beginning from the financial year in which the property has been acquired or constructed. If the house property is owned by two or more persons with “definite and ascertainable” shares, then their income from such house property shall be computed separately in accordance with respective shares.
The provisions for the self-occupied house are broadly similar to those under the current tax law. Thus, in case of a self-occupied property, a deduction can be claimed up to `1.5 lakh for the interest paid on a loan taken for the purposes of acquisition, construction, repair or renovation of a house property in the year which such property is acquired or constructed. It is important to note that certain conditions must be satisfied to claim this deduction, which include that the house property should be owned by the person and not let-out during the financial year.
DEEMED TO BE LET-OUT property
The DTC has done away with the concept of deemed to be let-out property. If an individual owns more than one house, the income from them will not be taxed. Under the current tax law, only one house is considered as self-occupied and other houses are considered deemed to be let-out and taxed accordingly. It is important to note that any interest paid on the housing loan for such properties will not be eligible for deduction.
Remarks: Good for taxpayers as now they can own post implementation of more then one house property without worrying about tax on deemed Income. It will also reduce litigation as determination of fair market value for Deemed Rent amount was always subject to litigation.
REPAYMENT OF PRINCIPAL OF HOUSING LOAN
Currently, a person can claim a deduction up to Rs 1 lakh on the repayment of the principal amount of the housing loan. However, no such deduction will be available under the DTC.
Remarks: Not good for taxpayer