Monday, 10 November 2014

Income from House Property

Income/Loss  from/on  House property is computed by taking into account what is called Gross Annual Value of the property. The annual value (in the case of a let out property) is the maximum of the following:

1.Rent received     2.Municipal Valuation   3.Fair Rent (as determined by the IT department)

If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, 30% of Net value as repair cost (This is a mandatory deduction and no other deduction) is available.

Interest paid or payable on a housing loan against this house property can be claimed as deduction u/s 24 of the IT act. In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). Refer to latest  income tax notifications to see amendments to this section.

Husband and wife can take a joint Housing Loan to get benefit of maximum limit of Rs.1,50,000-00 but just taking a joint loan won’t make you eligible for tax rebates. Both of you can avail tax benefits on the home loan only if both of you are the co-owners of the property. “Co-borrowers ,who are also co-owners, are eligible for tax rebate in the proportion of their share in the loan. It means you have to consider the repayment capacity of each spouse while deciding the share of the loan. So, a couple can be equal owners but if their share of the loan is in the ratio of 60:40, the tax benefits would be shared in that proportion,” says a leading Financial Adviser. So, a couple can be equal owners but if their share of the loan is in the ratio of 60:40 or 70:30, the tax benefits would be shared in that proportion. Ideally an individual in the higher tax bracket should opt for a higher ratio of the loan to save on more taxes.

You cannot issue two cheques for servicing the same EMI even in case of a joint loan. Hence you should open a joint account or route the EMI payments from an existing joint account. The second option is to share the number of installments. For example, six cheques in a year could be issued from the husband’s account, while the wife could issue for the rest of the period if the loan is shared in the ratio 50:50.

The maximum tax deduction available for a single borrower is Rs 1.5 lakh. This deduction would apply to each borrower, taking the total possible deduction to Rs 3 lakh. “To claim this benefit get a break up of share of the loan on a stamp paper at the beginning itself to avoid tax complications,”  as per income tax experts' opinion. Each borrower has to provide a copy of the borrower certificate to claim their respective tax relief. The co-borrowers (you and your spouse) should enter into a simple agreement  on Rs 100/- stamp paper. This agreement will contain the share of the ownership along with that of the home loan availed by the couple. You need two copies of the certificate from the Bank and each of you can submit copies the certificates along with a copy.

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