Deemed Let Out

Deemed Let Out
Mr Kishore owns a 2BHK Flat in Bangalore which he purchased in 2010. Presently, he along with his family is residing there since then. Recently, his know friend who is into real-estate has offered to purchase 3 BHK Flat in the other end of the city which would be near to his office & his children school. He purchased the flat in April 2015, but thought by the end of the month since it was a readymade flat without any changes to made for interiors. But due to some family reasons, he couldn’t shift to that house neither has he rented it out during the year assuming he would shift. In July, while filing his return his HR Department asked that since the 2nd house wasn’t neither let-out, it would have assumed as Deemed to be let out property. Mr Kishore is confused about deemed to be let out property.

Usually, people would be interested in buying more than one house for capital appreciation, investment purpose or various other reasons. However, as per the income tax department an individual at his choice can claim of those house which he owns as self-occupied and claim nix tax, however the other house irrespective whether he rented it or self-occupied by his family would be treated as let out property and computed for taxation purpose.

The standard format used for computing the taxable income is under follows: -

Particulars

Amount

Gross Annual Value

XXXX

Less: Municipal taxes paid by the assesse during the previous year

XXXX

Net Annual Value

XXXX

Less: Deductions under section 24

 

a.       Standard deduction- 30% of NAV

XXXX

b.       Interest on Borrowed Capital

XXXX

Taxable income under House Property

XXXX

 

Gross annual value would be calculated as under:

Municipal value or Fair Rental, higher of either wold be compared with standard rent as per the rent control act, subject to lower of them will be referred as Gross annual value in case of Deemed to be let out property.

Let’s assume

  •  Municipal value to be Rs 45000
  • Rental value(FVR) to be Rs 4000 per month i.e. Rs 48000          FVR would be take      
  •          Compared the higher of above with Standard Rent Rs 46,500      Std Rent is to be taken 

If any property is assumed as Self Occupied property ,there would no tax impact. However, any interest payments made etc would be taken into consideration.

The standard format used for computing the taxable income is under follows: -

Particulars

Amount

Gross Annual Value

NIL

Less: Deductions under section 24

 

           Interest on Borrowed Capital

XXXX

Taxable income under House Property

-XXXX

 

It for the individual to decide which house should he consider as Self Occupied & which to be considered as Deemed to let out property.

Let’s take a Small example and understand in detail……

Mr Karthik has two houses in Mumbai, In which one of the house he is residing with his parents & his family. Recently, he purchased a small house for his parents in a much calm location as his parents felt their current house is disturbed by a lot of traffic. Following are the details of the two houses

 

Particulars

House-1 (Amount in INR)

House-2 (Amount in INR)

Municipal Value

45,000

56,000

Fair Rental Value

36,500

47,500

Standard Rent

40,500

43,500

Municipal Taxes Paid

5,400

7,500

Interest on Borrowed Capital

12,200

15,000

 

 

 

 

OPTION-1

Let’s assuming how would it impact Mr Karthik if we assume that he treats both the houses as Self Occupied Property

Particulars

House-1

House-2

Gross Annual Value

NIL

NIL

Less: Deductions under section 24

 

 

           Interest on Borrowed Capital

-12,200

-15,000

Taxable income under House Property

-12,200

-15,000

 

OPTION-2

Now, Let’s assuming how would it impact Mr Karthik if we assume that he treats both the houses as Deemed to be let out Property

Particulars

House-1

House-2

Gross Annual Value

40,500

43,500

Less: Municipal taxes paid by the assesse during the previous year

-5,400

-7,500

Net Annual Value

35,100

36,000

Less: Deductions under section 24

 

 

       Standard deduction- 30% of NAV

-10,530

-10,800

      Interest on Borrowed Capital

-12,200

15,000

Taxable income under House Property

12,370

10,200

 

Calculation of Gross Annual Value (GAV)

Particulars

House-1

House-2

Municipal Value

45,000

56,000

Fair Rental Value

36,500

47,500

            Standard Rent

40,500

43,500

Gross Annual Value

40,500

43,500

 

How to claim Maximum tax benefit

Particulars

House-1

House-2

Option-1: Assuming as Self Occupied

-12,200

-15,000

Option-1: Assuming as Deemed to be let out

12,370

10,200

Taxable income under House Property

170

-4,800

 

Therefore, it is Advisable for Mr Kartik the house where his parents are staying a Self-occupied property & his current location as Deemed to let out for availing tax benefits.