House Property

FAQ's on deduction from house property income under Income Tax Act.

Q.I am a private sector employee in the 30 percent tax bracket. I was allotted a residential flat in a Housing Authority in March 2001. How can I claim tax benefit for the flat allotted to me? The cost of the flat is Rs. 8.95 lacs and the super area is 85 square metres. I have already paid about 25% of the estimated cost during the current year 00-01. I am required to pay the authority quarterly installments for next six years.

Should I obtain the certificate from the Housing authority to claim the interest and the principal amount. Does the statement prepared by me suffice.

The above flat is not under my possession nor has it been constructed so far. It will be handed over at end of the year 2003. How can I claim rebate/deduction while filling income tax return?

I have paid the above amount from personal loan from my parents and uncle. How can I show this in my income tax return?

Ans: Based on the facts , it is clear that the flat for which you are making the payment has not yet been constructed. Therefore the question of giving possession to you does not arise. You can not claim any deduction or tax rebate while filling income tax return. Later on when the flat is ready, you can claim tax deduction in respect of the interest on loan as well as rebate on principal amount.To arrive at the figure for principal and interest, you must obtain a certificate or a statement from the Housing authority.

Q.I intend to purchase a residential flat in a Housing Society from the original allottee through power of attorney. I am planning to take a home loan from financial institution like HDFC/CAN FIN by mortgaging another property belonging to my wife, who is a co- applicant. The society does not have C& D certificate as on date. As such I will not able to register the flat in my name (first applicant) and my name will only appear in the power of attorney.

Whether the interest and principal towards re-payment of my loan for purchase of flat in the Housing Society quality for income tax rebate.

Ans: Even in respect of power of attorney flat or property, benefit of tax deduction in respect of repayment of interest is available. What is important is not merely the registration of power of attorney but possession of the concern property.

Q. My father has already expired. Under his will he divided his property between me and my brother. The will clearly mentioned that property is being divided between my brother 's HUF consisting of my brother, his wife and his son, and my HUF consisting of my wife, my daughter and me. On the basis of above will, I am regularly filing income tax returns of the HUF since 1990 which are being accepted by the IT department and a permanent account Number has also been allotted to the HUF. Please note that I have no son till date.

Who will inherit the HUF property (suppose my wife also dies) as there is no son, but only a daughter after my death.

Ans:The HUF, which comes in to existence through the will of your late father is perfectly in order. What is required is only clear cut mentioned in the will that the asset are given not to the individual but to the HUF of the person. Innumerable judgements of the high court say that a son is not necessary to claim status of HUF file.

Secondly, after your death or the death of your wife the HUF will come to a close and the assets shall be inherited by the legal heirs as per the provisions of your will . In case no will is prepared the succession will take place as per Hindu Succession Ac

Q. Please clarify the following:

When it is obligatory upon an employee to file a tax return:

(a) Whose only source of income is salary plus bank within exemption limit u/s 80L.

(b) Whose GTI before any deductions exceeds Rs. 1 lac per year,

(c) Who is subject to TDS by his employer, though the net tax payable after deductions and rebate comes to nil; and

(d) who does not fall under one out of six scheme;

If the answer is yes, please quote the section.

In case he fails to file the tax return, does he attract any penalty, and if so how much and under what sections .The general impression I have is that an employee whose tax is deducted at source is not required to file his return.

Ans: The filing of tax return is compulsory when the taxable income is in excess of Rs. 50000/- per annum. Sec 139(1) is the charging section.Non filing of tax return now attracts penalty of Rs. 5000/-.

Q. I am in recipient of prize money after TDS @ 44% for which the TDS certificate has already been issued for the A.Y. 2001-02. As per Sec. 115BB of the I.T. act, income from prize money after deduction of basic exemption of Rs. 5000/- for casual and nonrecurring income is taxable at a flat rate of 40% plus surcharge.

Can I claim my refund for TDS by filing income tax return and offering the income from the prize money along with my salary.

Ans: Under the provisions of Income Tax Act, 1961, the income from winning from Prize money and races including horse races, card games of any sort is taxable @ 40% plus surcharge for the Financial year 2000-01. The tax rates have been lowered to 30% for the next year i.e. Financial year 2001-02.These income can not be set off against any loss, neither any refund can be claimed against these income.

Q. I am a public sector undertaking employee and am planning to purchase a DDA flat with free hold rights. My employer will release the loan I have applied but it will take time I have arranged money from my own sources.

Will my wife /me/first seller /seller face any tax problem.

Ans: Based on the facts of the case, one is advised not to purchase house in the name of wife from the funds belonging to you .If you purchase, then income arising directly or in directly from this house property will be treated as your income. You are here by advised to purchase in your name with arranged funds and later on avail loan from your orgnisation without any problem.

The second opinion may be that one may loan the required amounts to one’s wife and this money may be used for acquiring the residential property. This financial transaction may bear some nominal interest.

Q. I am residing in a flat provided by my employer in the city where my office is located. I have recently got the possession of another flat in a co- operative housing society in the same city. The flat was build by taking the loan from the bank. I shall be glad to know whether the property can be treated as self occupied for claiming the interest u/s23 of Income Tax Act.

Ans: The flat in co- operative society will be treated as your self occupied property and you would be eligible for claiming the deduction in respect of interest on loan take by you from the bank. The maximum interest to be allowed as deduction during the current financial year is Rs. 1.5 lakhs.

Q. In case one constructs a house in one city from the loans taken from the lending financial institutions and let out this house, the tax benefits in respected of repayment of the loan and interest are available. Subsequently, the concerned person becomes a member of another group housing society in the same city for acquiring a flat from the house building advance (HBA) obtained from his employer.

Whether once the house is under possession of the person, one may claim tax benefit on repayment of interest for the first mentioned house as well as the later mentioned flat.

Ans: As the first house is also let out, the interest claim shall qualify for tax deduction.

The recent house once acquired and taken possession of, it shall be treated as the self occupied property. Hence, the interest on the office loans shall be eligible for tax deduction.

Q. In case one takes a loan for extension of a self occupied residential house property, whether the interest payment shall be eligible for tax deduction.

Ans: The entire interest chargeable on loan amount will be allowed as deduction while computing the Income Tax liability.

Q. Some of us who live in DDA flat have made our wives co- owners of the flat while converting the property to free hold. If an individual dies intestate (i.e.without a will) does the lady become the absolute owner of the property? There is a view that the second name is similar to the second name in a fixed deposit will the FD amount be included in the estate?

Will the wife (the second name in the FD account) become the absolute owner of the FD amount?

What is the distinction, if any between the second name in the FD amount and second name in the conveyance deed, when the second name is that of the wife?

Ans: Your wife may be the co-owner in the records of DDA, but as the property has been constructed from your funds and there is no share from your wife financially. In such a case if the person were to die intestate, then all the legal heirs share the property equally. It is advised that you should prepare a will.

It may be further noted that will once registered before the Office of the Sub Registrar shall become final and binding in law.

Q. In case when the house is ready but not taken possession of by the owner. Can the interest be claimed as tax deduction?

Ans: Possession of the flat is necessary for claiming the deduction for the interest payment.

Q.In case the spouse also takes a loan for a separate residential house, whether independent tax deduction shall be available to her.

Ans: The Tax deduction is always calculated separately for each individual.

Q. I am a housewife. Recently I gave out of my house on rent. The house is my name .I am likely to earn Rs. 5000/- per month from it.

Shall file an income tax without PAN? Can the income be shown as income of my spouse who is already income tax payee? If so, how? Conversely, can income from a house, which in husband name, be shown as income in the name of the wife? How

Ans: In the income tax return, income from house property is shown in the name of tax payer who is the owner of the property. Hence, if the house wife owns the property, it would be incorrect to show such rental income in the hands of the husband.

Secondly, you can file your income tax return even without a permanent account number in case PAN has not been allotted to you. If you have not applied for PAN, you should apply for it in form no.49A.

Q. My husband and I jointly own a group housing flat in Delhi which is self occupied. The flat has been financed from a loan from HDFC around five years ago. This loan has already been paid back and I had availed in income tax exemption of Rs.10000/- per year availed at that time. I have come across a rule of the registrar of Co-operative society (No. F.PA/RCS/88) dated August 3,1998 which states that dependent children can become member of house building /housing society even if the parents own a property in Delhi

Can we buy another property either in our name or in the name of our major son who is currently studying and is not earning yet?

Please let me know whether I shall be entitled to tax benefit, if I purchase another property.

Ans: Interest deduction is allowed only for one self occupied house property. Therefore in case you buy this house for the self occupation, the deemed annual value shall be chargeable to income tax in your name.

Secondly, if you loan the sum to your son and this moneys so received by your son ( being a major), the property is purchased shall be treated as his house property. One may charge some interest for such loans.

It may be noted that alternatively, this house if bought in your name, is let out, the rental income as earned by you may be reduced by the amount of interest payments you make for such loans.

Q. I had constructed a single story house by raising the HBA from the Central Govt. I now intend to construct the first floor on the same plot by securing a housing loan from the financial institution.

Whether is may be taken to be a construction of the house property for the purpose of claiming the interest deduction.

Ans: Based on the fact stated by you, such extension of the existing house by constructing a floor will treated as work on the same residential house only. As a safeguard, please make ensure that the property is treated as one property by the house tax department for computing house tax.

Q. During the financial year 2000-01, I purchased a residential house property by raising a housing loan from my employer. I have claimed the tax rebate u/s 88 for repayment of installment and interest on housing loan is also deducted from my taxable income. The bank has not financed the registration fee and stamp duty amounting to Rs.80000/- which I have spent from my own sources.

Ans: In respect of payment for registration fee, stamp fee, etc, tax rebate u/s 88 is permissible. The maximum amount on which rebate can be availed including the payment for purchase or construction of residential house or payment of installment is Rs.20000/- per annum.

Q: I am a PSU employee have taken a housing loan of sum Rs.3 lakh on 13-6-1996 from Canfin Homes Ltd to purchase my house in Vasundara, Ghaziabad. This property was sold to me in semi-finished condition under the self-financed Scheme from UP Avers & Vikas Parishad. I got the possession of the semi-finished house in Feb 1998. I could not complete the house then due to lack of finance. On 6-1-2001,I again took a loan of Rs.1.9lakh from Canfin to complete the construction of the same house.I am residing in the house form Nov 2000. As per the income tax deduction calculation at source, my loss from house property has been limited to Rs. 30000 by my employer-considering only the interest for the first loan of Rs3 lakh. Kindly tell me, if the interest for my second loan of Rs1.9lakh shall be exempted from income tax.

Ans: The interest paid by you on the second loan of Rs1.9 lakh would be eligible for tax deduction. Remember that the maximum interest on loan that is allowed for loans taken after 1-4-1999 is Rs1.5 lakh. Thus, in your case, you would be eligible for deduction of Rs30000 on account of interest for loan taken prior to 1-4-1999 while in case of loan taken after 14-1999 the entire interest will further be allowed in addition to the said Rs30000. However, the total deduction onaccout of interest is limited to Rs1.5 lakh per annum.

Q: My wife and I have purchased a flat for residential purpose jointly in March 2001. The flat is under construction and we will get possession of the floor in 2003. We have taken a housing loan of Rs 3 lakh jointly from ICICI Ltd. in April 2001 for the same.

Are we eligible for income tax rebate in the financial year 2001-2002.

Ans: The deduction of interest on loan will be available only when the flat is complete. In your case, as the construction will not be completed during this financial year, you can not enjoy tax deduction on account of interest or tax rebate in respect of payment of the principal amount. In the subsequent financial year, you will be eligible for deduction both for the payment of interest as well as tax rebate for repayment of the principal amount. You and your wife will be eligible to claim separate deduction in respect of house rent allowance received by both of you. It is advisable to obtain two separate receipts form the landlord to avoid any problem at a later stage.

Q: I want to get the following clarifications on personal income tax. I am a salaried employee and have purchased a flat and am staying there. The flat has been jointly acquired by me and my wife. My wife, a housewife got some money from selling some paternal property. This money was used for contributing her share in the house property. Remaining money, I have contributed by taking a housing loan form the bank. The property is registered in both of our names.

Can I claim rebates for interest on borrowed capital u\s 88.

Can I also pay rent to my wife (proportionate to her contribution and proportionate to the existing market rent prevailing in the area) and claim benefit of paying rent allowance along with the above-mentioned benefits of repaying house loan.

Ans: Yes, the rent can be paid to your wife in proportion to her share in the ownership of the property and thus claim benefit of tax deduction in respect of the house rent allowance received by you. As you are under physical possession of the remaining portion of the house property, You are entitled to get the benefit of tax rebate u\s 88 on the repayment of installment as also deduction in respect of interest on loan.

Q: I have a DDA plot in my name. The ground floor was built in 1989 with my own savings. The first floor was built in 1997 with the saving of my wife who is also employed. If I rent out first floor, can this rental income be shown as that of my wife in her income tax return.

Ans: The rental income from the first floor of the house property can not be treated as belonging to your wife. This is because of the fact that she is not the legal owner of the land and she has only contributed for the construction of the first floor. If possible, please sell the roof right of the first floor to her. Then it will be possible for to show the rent received form first floor as belonging to her. Based on the present facts, the rental income from the first floor will be treated as your income.

Q: My mother owned two floors in a building. In April 1992, she filed a suit for possession and menses profit \ damages against her tenant. She expired on 6-8-1994. I am the only legal heir. The suit has been decided in her favour and as the legal heir I am likely to get decretal amount of Rs7 lakh now as damages menses profits from 1-4-1989 to 10.3.1998 for unauthorized use of remises by the tenant. The decretal amount includes Rs13,000/- as court expenses.

My mother had been filing her IT return and had executed a separate rent agreement. She was showing her rental income from the property in her returns. I did not file IT return of my mother after her death 1-4-1995 onward. The property has not been mutated in her name so far. I, however, have been clubbing her rental income of these two floors with that of my income after her death. I pay Income Tax in the highest slabs.

Could I be informed of my tax liability, and how can I reduce my liability?

Ans: The amount received by you on account of mesne profits would not be liable to income tax based on the decision of the Kerala high court in the cases of Achuthan Pillai and company vs CIT 283 ITR 458.