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Section 80GGC


Section 80GGC of the Income Tax Act provides tax deductions for contributions made to political parties. This can range from 50% to 100% of the amount contributed. This provides a great deal of tax saving while encouraging a strong political system.

Section 80GGC of the Income Tax Act deals with any contributions made by an individual to a political party. Under Section 80GGC Individuals can avail of tax deductions that range from 50% – 100% of the contribution amount. As per the Income Tax Act, an individual can donate as much as 10% of his or her gross earning to any political organisation of his or her choice.

Individuals who avail of deductions under Section 80GGC have the advantage of saving on a sizeable portion of tax every financial year in tandem with other deductions such as House Rent Allowance, Medical Allowance and much more.

Features of Section 80GGC:

The main features of Section 80GGC are:

  • Deductions under this section can be availed only by individuals ie: non-corporate assessees or taxpayers
  • This section came into existence via the Finance Act 2009, with the objective of introducing transparency into electoral funding as well as making it corruption free
  • Deductions under this section fall under Chapter VIA deductions. This means that the total amount of deduction allowed cannot be more than the total taxable income of the individual
  • Deductions under this section are not applicable on tax deducted at source on an individual’s salary. Only employees who draw a salary with no other income from other businesses can avail deductions under this section while filing their returns.

Eligibility Criteria under Section 80GGC:

Taxpayers looking to avail of deductions under Section 80GGC are required to fulfil the following eligibility criteria:

  • The taxpayer or assessee can be any individual or person
  • The taxpayer or assessee cannot be a local authority
  • The taxpayer or assessee cannot be an Artificial Judicial Person, who receives funding from the government either partially or completely
  • Companies cannot avail of deductions under this Section

Entities to which Donations or Contributions can be made under Section 80GGC:

As per Section 80GGC, an individual can make a donation or contribution only to the following entities:

  • An electoral trust
  • Any political party that has been registered under Section 29A of the Representation of the People Act, 1951

Amount of Deduction that can be claimed under Section 80GGC:

Individuals who make donations to any political party can claim deductions of up to 100 per cent of their contribution to said party. By doing so, the total taxable income of the individual is lowered in proportion to the contribution her or she has donated to the concerned party. In other words, the entire amount of a taxpayer or assessee contribution to a legitimate political party will be allowed as deduction from his or her taxable income.

Procedure to avail of Deductions under Section 80GGC:

  • Taxpayers or assessees looking to claim deductions under Section 80GGC can do so while filing their tax returns simply by including the amount of their contribution to a political party in the space provided for Section 80GGC in the Income Tax Return form. This Section appears under Chapter VI-A deductions in the Income Tax Return form.
  • Donations made to political parties should be made solely through legitimate banking portals such as online internet banking, cheques, debit cards, credit cards, demand drafts etc in order to claim deductions under this section.

Exceptions under Section 80GGC:

There are certain exceptions under which contributions made to political parties will not be eligible for deductions. These exceptions are as follows:

  • Any donations or contributions made in monetary form or cash are not eligible for deduction under Section 80GGC. This exception to the rule was brought into effect on the 1st of April 2014 and applies to every financial year commencing from the year 2014-2015 and beyond.
  • Any donations or contributions to any political party that are made in kind are also not eligible for deduction under Section 80GGC. This includes gifts or favours of any kind.

https://www.bankbazaar.com/tax/section-80ggc.html

 
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Posted by on November 23, 2019 in TDS

 

Senior Citizens Savings Scheme (SCSS)


 

Senior Citizens Savings Scheme (SCSS) is a government-backed savings instrument offered to Indian residents aged over 60 years. The deposit matures after 5 years from the date of account opening but can be extended once by an additional 3 years. The SCSS interest rate for January to March 2019 has been set at 8.6%. This is the highest interest rate among the various small savings schemes in India.  SCSS is available through Public / Private sector banks and India Post Offices. Being a government-backed savings instrument, the terms and conditions applicable to the SCSS are the same, regardless of the bank/ post office you invest through.

Senior Citizens Savings Scheme Interest Rates

As of July 2019, the interest rate available on the SCSS account is 8.6% per annum for the July to September 2019 quarter. This rate of interest is reviewed quarterly by the Ministry of Finance and subject to periodic change. Interest on SCSS account deposits is compounded and credited quarterly. The following are the historic interest rates of the SCSS account.

 

Time Period Interest Rate (% annually)
Jul to Sep 2019 (Q2 FY 2019-20) 8.6
Apr to Jun 2019 (Q1 FY 2019-20) 8.7
Jan to March 2019 (Q4 FY 2018-19) 8.7
Oct to Dec 2018 (Q3 FY 2018-19) 8.7
Jul to Sep 2018 (Q2 FY 2018-19) 8.3
Apr to Jun 2018 (Q1 FY 2018-19) 8.3
Jan to March 2018 (Q4 FY 2017-18) 8.3
Oct to Dec 2017 (Q3 FY 2017-18) 8.3
Jul to Sep 2017 (Q2 FY 2017-18) 8.3
Apr to Jun 2017 (Q1 FY 2017-18) 8.4

Data Source: National Savings Institute

Minimum and Maximum SCSS Deposit Limits

Depositors are allowed to make a lump sum deposit with a minimum deposit of Rs.1000. Deposits greater than Rs.1000 have to be made in multiples of Rs.1000. The maximum SCSS limit deposit is Rs.15 lakh.

While deposits in the SCSS accounts can be made in cash, this is allowed only for amounts less than Rs. 1 lakh. If the deposit amount for Senior Citizens Savings Scheme exceeds Rs. 1 lakh, using a cheque/demand draft for making the deposit is mandatory.

Maturity of Senior Citizen’s Savings Scheme

Deposits made into a Senior Citizens’ Savings Scheme mature after 5 years calculated from the date of account opening. However, the account holder does have the option of extending the account for an additional 3 years after it has matured. This extension option is currently available just once and the extension request has to be made within 1 year of maturity of the SCSS account.   

Eligibility for Senior Citizens Saving Schemes

In order to avail this saving scheme for senior citizens, resident Indians have to meet the following key conditions:

  • The scheme is available to any resident individual aged 60 years and above.
  • Also, individuals who have attained 55 years but are less than sixty years old are also eligible to apply for the senior citizens savings scheme provided they have retired under applicable superannuation or VRS rules. In such cases, the account should be open within 1 month of the receipt of retirement benefits.
  • The scheme is also available for the retired defense personnel irrespective of above mentioned age limits subject to fulfillment of other terms & conditions.
  • Non-Resident Indians (NRIs) and Person of Indian Origin (PIOs) are not entitled to open a Senior Citizens Savings Scheme account.
  • Also, Hindu Undivided Family members are not entitled to open the account under these rules.

Tax Benefits of Investing in Senior Citizens Savings Scheme

  • Investments made in a Senior Citizen Savings Scheme account qualify for income tax deduction benefit under Section 80C of the Income Tax Act, 1961.
  • Interest on SCSS is fully taxable. In case the interest amount earned is more than Rs. 50,000 for a fiscal, Tax Deducted at Source (TDS) is applicable to the interest earned. This limit for TDS deduction on SCSS investments is applicable from AY 2020-21 onwards.

Senior Citizens Savings Scheme Calculation Method

Deposits made into a Senior Citizens Savings Scheme account are compounded and paid out annually. These payouts are automatically credited to the savings account held with the post office/bank where this savings scheme account for senior citizens has been opened.

The interest rate on SCSS is currently 8.6% (as of Q2 FY 19-20). Assuming that you have deposited Rs. 15 lakh (the maximum amount permitted) in SCSS, the maturity value at the end of the 5-year tenure will be (15,00,000*1.086)^5 = Rs 22.65 lakh).

How to Open a SCSS Account at Post Office

You can open a Senior Citizens Savings Scheme account at all India Post Offices. The interest earned from SCSS account is automatically credited to the investor’s linked savings account at the same post office. The wide reach of India Post ensures that the option of SCSS account is available to Indians across the country- even those located in the most remote parts.

SCSS Account Registration at Banks

Apart from the post offices, the SCSS account is also offered at select Public/ Private sector banks. The following are key benefits of opening a Senior Citizen’s Savings Scheme account at authorized banks:

  • The accrued interest can be directly credited into the depositor’s savings bank account held with the bank branch.
  • Standard account statements are forwarded to depositor through post or email.
  • 24×7 customer service through phone banking services.

In case you are a senior citizen and plan to complete your SCSS registration at a bank, you will have to follow the applicable account opening procedure.

SCSS Application Form Download Online

Senior Citizen’s Application Form is available via the offline route at India Post Offices as well as via the online route. If you are planning to open your SCSS account at an India Post Office, you can download the SCSS application form from the official India Post website.

A number of participating public and private sector banks also have the option of SCSS Application form download from their official websites. Alternatively, you may choose to obtain the paper form at designated branches of participating banks in India.

How to Fill Senior Citizen’s Savings Scheme Application Form

Currently, a SCSS account cannot be opened via the online route, thus after downloading the SCSS application form, you have to print, fill it out and submit the completed SCSS Application form (at the post office/bank) along with applicable supporting documents.  The SCSS application form requires you to provide some key information at the time of opening a Senior Citizen’s Savings Scheme account such as:

  •         Applicant name and PAN
  •         Name of the primary applicant’s father/mother/husband/wife
  •         In the case of joint SCSS account with spouse, you have to mention the name, age, and address of your spouse.
  •         Cheque/demand draft amount and number (if applicable)
  •         Nominee name, age, and address (If you wish to have more than one nominee, mention detail of individual share of each nominee)

List of Banks offering SCSS Account

The following is a list of top public sector banks offering the facility of opening a Senior Citizen’s Savings Scheme account –

  1. Allahabad Bank
  2. Andhra bank
  3. State Bank of India
  4. Bank of Maharashtra
  5. Bank of Baroda
  6. Bank of India
  7. Corporation Bank
  8. Canara Bank
  9. Central Bank of India
  10. Dena Bank
  11. Syndicate Bank
  12. UCO Bank
  13. Union Bank of India
  14. Vijaya Bank
  15. IDBI Bank
  16. Indian Bank
  17. Indian Overseas Bank
  18. Punjab National Bank
  19. United Bank of India

A leading private sector bank that offers this account to senior citizens is ICICI Bank. The above list is illustrative and additional banks not included in this list may also offer this scheme.

Premature Withdrawal of SCSS Account Deposit

Premature withdrawal of Senior Citizen’s Savings Scheme is allowed but penalties are applicable in such cases based on the time elapsed between account opening and withdrawal. The penalties on premature exit from SCSS are as follows:

  •         1.5% of deposit amount deducted as a penalty if an exit from the scheme occurs before completion of 2 years from the date of account opening.
  •         1% of SCSS deposit deducted as a penalty if an exit from the scheme occurs between 2 years to less than 5 years from the date of account opening

Benefits of Investing in Senior Citizen Savings Scheme

  • Being a government-backed scheme, SCSS comes with all the protection and assertion associated with all government schemes i.e. sovereign debt.
  • Superior Returns- the scheme has a high interest rate of 8.6% per annum. This is higher than most tax savings instruments in Sector 80C.
  • Medium Term Investment – The account comes with an initial maturity term of 5 years however this can be further extended to another 3 years. This encourages senior citizens to have this saving scheme as a medium or a long term investment product in their financial kitty.
  • The investment done under this scheme is tax-deductible under Section 80C, of the Income Tax Act, 1961 up to Rs. 1.5 lakh per annum.
  • Flexibility in Investment amount – One can invest any amount in multiples of Rs. 1,000 up to the maximum cap of Rs. 15 lakhs. However, only onetime lump sum investments are allowed.
  • The option of premature withdrawal in case of financial emergencies (with applicable penalties).
  • Easy availability – the scheme may be availed through India Post Offices or designated bank branches located across the country.

Know about top Senior Citizen Investment Options in India

Closure of SCSS Account before Maturity

In the event of death of the primary account holder before actual maturity of the account, the account will be closed and all the maturity proceeds will be transferred to the legal heir/nominee. For deceased claims, the nominee or the legal heir will have to fill out a written application in prescribed format along with Death Certificate to facilitate the closure of the account.

FAQs

Q1.How can I open a senior citizen savings schemes account online?

Ans. In order to open a SCSS account, the customer must visit the post office or bank branch and fill up the related form. The same form should be attached with KYC documents, age proof, ID proof, Address proof and cheque for deposit amount.

Q2.IS 80C applicable on senior citizen savings schemes?

Ans. Yes, investments made in SCSS are eligible for income tax deduction benefits under the Section 80C of Income Tax Act, 1961.

Q3.Can I open a senior citizen saving account with SBI Bank?

Ans. Of course, any senior citizen can open a senior citizen savings account with banks such as the State Bank of India. However, according to SBI’s guidelines, a depositor can hold two or more SCSS account only if the deposits in all account taken together does not exceed Rs.15 lakh.

Q4.What is the maximum age of senior citizen saving account opening?

Ans. Any individual, above the age of 60, can open a Senior citizen savings account accompanied by all the required documents.

Q5.Can anyone open joint SCSS account with any family member?

Ans. A joint SCSS account can be opened by investing maximum Rs.15 lakh (in the multiples of Rs.1000) only with the spouse.

Q6.What is the eligibility criteria of joint senior citizen saving account?

Ans. While opening a joint SCSS account, the age of first depositor is supposed to be above 60 years. However, there is no age limit for the second applicant. The joint account can be opened only with the spouse.

 
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Posted by on November 21, 2019 in TDS

 

House Property and Taxes


Owning a house one day – everybody dreams of this, saves towards this and hopes to achieve this one day. However, owning a house property is not without responsibilities. Paying house property taxes annually is one of them. If you want to learn how to save tax on home loan interest, this guide is for you. It also talks about how to report home ownership in your income tax return.

  1. Basics of House Property
  2. Steps to Calculate Income From House Property
  3. Tax Deduction on Home Loans
  4. Claiming Deduction on Home Loan
  5. Tax Benefits on Home Loans for Joint Owners
  6. HRA and Deduction on Home Loan
  7. Case Study
  8. Significant Budget Amendment in 2017 – Impact explained with an example
  9. Frequently Asked Questions
  10. Would you like an expert to help you with your IT returns?

1. Basics of House Property

A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. The Income Tax Act does not differentiate between a commercial and residential property. All types of properties are taxed under the head ‘income from house property’ in the income tax return. An owner for the purpose of income tax is its legal owner, someone who can exercise the rights of the owner in his own right and not on someone else’s behalf.When a property is used for the purpose of business or profession or for carrying out freelancing work – it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditure.a. Self-Occupied House Property

A self-occupied house property is used for one’s own residential purposes. This may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as self-occupied for the purpose of Income Tax.

Prior to FY 2019-20, if more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

For the FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been extended to 2 houses. Now, a homeowner can claim his 2 properties as self-occupied and remaining house as let out for Income tax purposes.

b.  Let Out House Property

A house property which is rented for the whole or a part of the year is considered a let out house property for income tax purposes

c. Inherited Property

An inherited property i.e. one bequeathed from parents, grandparents etc again, can either be a self occupied one or a let out one based on its usage as discussed above.

2. Steps to Calculate Income From House Property

Here is how you compute your income from a house property:a. Determine Gross Annual Value (GAV) of the property: The gross annual value of a self-occupied house is zero. For a let out property, it is the rent collected for a house on rent.b. Reduce Property Tax: Property tax, when paid, is allowed as a deduction from GAV of property.c. Determine Net Annual Value(NAV) : Net Annual Value = Gross Annual Value – Property Taxd. Reduce 30% of NAV towards standard deduction: 30% on NAV is allowed as a deduction from the NAV under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section.e. Reduce home loan interest: Deduction under Section 24 is also available for interest paid during the year on housing loan availed.f. Determine Income from house property: The resulting value is your income from house property. This is taxed at the slab rate applicable to you.g. Loss from house property: When you own a self occupied house, since its GAV is Nil, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.Note: When a property is let out, its gross annual value is the rental value of the property. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.

3. Tax Deduction on Home Loans

a. Tax Deduction on Home Loan Interest: Section 24

Homeowners can claim a deduction of up to Rs 2 lakh on their home loan interest, if the owner or his family resides in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire home loan interest is allowed as a deduction.However, your deduction on interest is limited to Rs. 30,000 instead of Rs 2 lakhs if both the following conditions stand satisfied:a. The loan is taken on or after 1 April 1999

b. The purchase or construction is not completed within 5 years from the end of the FY in which loan was availed

When is the deduction limited to Rs 30,000?As already mentioned, if the construction of the property is not completed within 5 years, the deduction on home loan interest shall be limited to Rs. 30,000. The period of 5 years is calculated from the end of the financial year in which loan was taken. So, if the loan was taken on 30th April 2015, the construction of the property should be completed by 31st March 2021. (For years prior to FY 2016-17, the period prescribed was 3 years which got increased to 5 years in Budget 2016).Note: Interest deduction can only be claimed, starting in the financial year in which the construction of the property is completed.
How do I claim a tax deduction on a loan taken before the construction of the property is complete?Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period.Interest paid during this time can be claimed as a tax deduction in five equal instalments starting from the year in which the construction of the property is completed. Understand pre-construction interest better with this example.

b. Tax Deduction on Principal Repayment

The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C.Check the principal repayment amount with your lender or look at your loan installment details.Conditions to claim this deduction-

  • The home loan must be for purchase or construction of a new house property.
  • The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.

Stamp duty and registration charges Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs 1.5 lakh. Claim these expenses in the same year you make the payment on them.

c. Tax Deduction for First-Time Homeowners: Section 80EE

Section 80EE recently added to the Income Tax Act provides the homeowners, with only one house property on the date of sanction of loan, a tax benefit of up to Rs 50,000.Click here to read more.

c. Tax Deduction for First-Time Homeowners: Section 80EEA

A new section 80EEA is added to extend the tax benefits of interest deduction for housing loan taken for affordable housing during the period 1 April 2019 to 31 March 2020. The individual taxpayer should not be entitled to deduction under section 80EE.Click here to read more. These benefits are not available for an under construction property.Do you own more than one house?If you own more than one house, you need to file the ITR-2 form.Read our guide to ITR-2 form here.

4. Claiming Deduction on Home Loan

  • The amount of deduction you can claim depends on the ownership share you have on the property.
  • The home loan must also be in your name. A co-borrower can claim these deductions too.
  • The home loan deduction can only be claimed from the financial year in which the construction is completed.
  • Submit your home loan interest certificate to your employer for him to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.
  • Otherwise, you may have to calculate the taxes on your own and claim the refund, if any, at the time of tax filing. It’s also possible that you may have to deposit the dues on your own if there is a tax payable.
  • If you are self-employed or a freelancer, you don’t have to submit these documents anywhere, not even to the IT Department. You will need them to calculate your advance tax liability for every quarter. You must keep them safely to answer queries that may arise from the IT Department and for your own records.

5. Tax Benefits on Home Loans for Joint Owners

The joint owners, who are also co-borrowers of a self-occupied house property, can claim a deduction on interest on the home loan up to Rs 2 lakh each. And deduction on principal repayments, including a deduction for stamp duty and registration charges under Section 80C within the overall limit of Rs.1.5 lakh for each of the joint owners. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property.You may have taken the loan jointly, but unless you are an owner in the property – you are not entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent and child together take up a loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan.Therefore, to claim the tax benefits on the property:1. You must be a co-owner in the property

2. You must be a co-borrower for the loan

Each co-owner can claim a deduction of maximum Rs 1.5 lakh towards repayment of principal under section 80C. This is within the overall limit of Rs 1.5 lakh of Section 80C. Therefore, you can avail a larger tax benefit against the interest paid on home loan when the property is jointly owned and your interest outgo exceeds Rs 2 lakh per year.It’s important to note that the tax benefit of both the deduction on home loan interest and principal repayment under section 80C can only be claimed once the construction of the property is complete.

6. HRA and Deduction on Home Loan

HRA and Deduction on Home Loan

Scenario 1:You live in a rented accommodation since your house is too small for your needsRaghav lives in a rented house in Noida since his own office, son’s school and his wife’s office are in Noida, He has his own house on the outskirts of Delhi which is quite small and also lying vacant. He is paying interest on the loan on his own house.Raghav can claim:

  • HRA for rent he pays for the house in Noida,and
  • Deduction on interest up to Rs 2,00,000 on the home loan

Scenario 2:You live in a rented house; your own house is also let outNeha recently bought a flat in Indore, though she lives and works in Bangalore. She has no plans of returning to Indore in the next five years so she gives that flat on rent. She lives on rent in Bangalore.Neha can claim:

  • HRA for the rent she pays for the house in Bangalore and
  • Claim the entire interest she pays during the year on the home loan

7. Case Study

8. Significant Budget Amendment in 2017 – Impact explained with an example

Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs. This amendment would not really affect taxpayers having a self-occupied house property. This move will have an impact on taxpayers who have let-out/ rented their properties. Though there is no bar on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest payment can be set off only to the extent of Rs 2 lakhs.Here is an example to help you comprehend the impact of the amendment:

  Particulars AY 2017-18 AY 2018-19
Salary income 10,00,000 10,00,000
Income from other sources (Interest income) 4,00,000 4,00,000
Income from house property (*) (4,40,000) (2,00,000)
Gross Total Income 9,60,000 12,00,000
Deductions 2,00,000 2,00,000
Taxable income 7,60,000 10,00,000
Tax on the above 77,000 1,12,500
Additional tax outgo excluding cess in AY 2018-19 on account of the amendment 35,500

Workings for Income from House Property

 Particulars AY 2017-18 AY 2018-19
Property A
Annual Value Nil Nil
(-) Interest on housing loan restricted to 2,00,000 2,00,000
Loss from House Property(A) (2,00,000) (2,00,000)
Property B
Net income from House Property after all deductions (B) 60,000 60,000
Property C
Annual Value 5,00,000 5,00,000
Less : Standard Deduction 1,50,000 1,50,000
Less : Interest on loan 6,50,000 6,50,000
Loss from House Property (C) (3,00,000) (3,00,000)
Total income from house property (A+B+C) (4,40,000) Restricted to (2,00,000). Balance loss of Rs 2.4 lakhs can be carried forward for the next 8 AYs

9. Frequently Asked Questions

  • What is your ‘income from house property’ when you/your family live(s)in it?
    If you are using your property for residence throughout the year and it’s not let out or used for any other purpose, it is considered a self-occupied house property. The gross annual value of this property is zero. There is no income from your house property.Note: Since the gross annual value of a self-occupied house is zero, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against your income from other heads.Click here to read how Suresh made a loss on his home property due to his home loan.
  • I own a house of two floors and run my business out of the Ground Floor. I live on the 1st Floor. How much will I pay in taxes?
    The Ground Floor will not be taxed under “income from house property” head. It shall be taxed under Business Profession head. The first floor will be treated as a self-occupied house property. Income from house property will be zero in this case.
  • A house has been self-occupied for six months and rented out for six months. What is its income?
    Calculate the gross annual value of the property by finding out its reasonable rent and actual rent collected.If Actual Rent is lower than Reasonable Rent, only because the house was vacant and not for any other reason, take actual rent collected as Gross Annual Value.If Actual Rent is lower than Reasonable Rent because of other factors (say the tenant and the landlord are related), then take reasonable rent as GAV.
  • Income received as rent from subletting of house property will be taxed under “Income from House Property”?
    No. This is because rental income received by the owner of property alone is taxed as “Income from House Property”. Rental income in the hands of anyone other than the owner shall be taxed under “Other sources”. Therefore, income from subletting will be chargeable under “Other Sources”.
  • Can a deduction of interest paid against loan taken from friends and relatives be claimed from house property income?
    Yes. A deduction under Section 24 for interest paid on loan availed from friends or relatives is also allowed from the Net Annual Value. The law nowhere mandates that the loan should have been taken only from a bank to claim this deduction.But here, one must note that the principal repayment in respect of such a loan will not qualify for a deduction under Section 80C.
  • I have taken a home loan from a bank for construction of a house in June 2015. The construction of the house is complete in June 2018. I have started paying the EMI for the home loan taken from July 2015. Will I not get any benefit of the home loan repayment made between July 2015 and June 2018 as the construction is complete only in June 2018?
    The income tax law allows you to claim pre-construction interest as a deduction from the Net Annual Value, which is nothing but the interest payment on home loan made between the date of borrowing and date of completion of construction. This interest can be claimed in 5 equal instalments beginning the year of completion of construction besides the regular interest claim.
  • How does the claim of deduction under Section 24 and Section 80C work if a home loan has been availed for 2 houses?
    A taxpayer can claim deduction under Section 24 of interest paid on home loan for each of the houses separately. However, the overall loss from house property that can be claimed for a year is restricted to Rs 2 lakhs.As regards 80C deduction, the principal portion of home loan repaid in respect of both houses can be claimed, however within the overall cap of Rs 1.5 lakhs for each financial year.
  • What is a self occupied property, let out property and deemed let out property?
    Self-occupied: Is one where you or your family resides and the question of receiving rental income out of this does not ariseLet Out: Is one which you have given out on rent. Therefore, the rental income would be considered as your income from house property.Deemed Let out: When a taxpayer owns more than two house property, the law mandates that only two (Prior to Budget 2019, it was only one property) such properties can be treated as self-occupied while the third one (irrespective of whether let out or not) will be deemed to be let out.
  • I have incurred a loss from house property. I have missed the return filing deadline. Will I lose the benefit of carry forward of losses incurred
    One is supposed to file his return within the due date which is 31 July for most of the individual taxpayers. If this is not done, losses if any, would not be allowed to be carried forward to future years for set off. However, losses from house property is an exception to this rule and can be carried forward to future years even if return is not filed on time.
  • I have paid municipal taxes on my flay pertaining to the year 2017-18 in April 2018. Can I claim deduction of such taxes for FY 2017-18 (AY 2018-19)?
    Municipal taxes are always allowed as a deduction only on payment basis. Though you have paid taxes pertaining to FY 2017-18, since the payment has been made in April 2018 i.e. FY 2018-19, it will be allowed for FY 2018-19 only as a deduction from Gross Annual Value
  • I am the owner of a shop space which I have given out on rent. How should I offer such income to tax?
    If rent has to be charged to tax under “Income from House Property”, the property that has been given on rent must be a building or a land appurtenant thereto. Since the shop falls under the definition of a building, the rental income from such shop must be offered to tax under “House Property only”.
  • I have transferred my flat in the name of my wife as a gift. She receives monthly rental from this flat. Should she offer this as her income?
    Since the flat has been given to your wife as a gift i.e. for nil consideration, you will be considered as the “deemed owner” of the house and the income from renting the flat will be clubbed in your hands and you must offer the same to tax as house property income.
  • I have received an unrealised rent which were arrears in earlier years. What will the tax treatment for such realisation of arrears of rent ?
    Since the unrealised rent was excluded from “Income from house property” in the previous years due to non- realisation, you will have to include this income in the year of receipt of arrears of rent. It is not necessary to be the owner of the property in the year of receipt. You can also deduct 30% of such rent while charging it to income tax.
  • I have 6 separate let out properties.Should I calculate the house property income for each individual property or by clubbing all the rental receipts in one calculation?
    The calculation will have to be made separately for each of the properties.
  • I own a property which was self-occupied from April 2017 to September 2017 and then was let out from October 2017 to February 2018. How will I compute my Income from house property ?
    For the purpose of computing Income from house property, such property will be considered to let-out throughout the year. However, actual rent received will only be considered for let-out period i.e October 2017 to February 2018.
  • How to compute income from a house property, when part of the property is self-occupied and part is let-out?
    If a house property consist of 2 or more units, one of which is self-occupied and the remaining units are let-out then the all the units will be treated as independent units and income from those units will be computed in the following manner:a. Income from unit occupied by the owner will be computed as Self Occupied property income andb. Income from unit let-out by the owner will be treated as let-out property income

https://cleartax.in/s/house-property

 
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Posted by on November 21, 2019 in TDS

 

Deductions from House Property Income – Section 24


Buying a home is one of the most common long-term investment goals for most Indians. House prices have indeed shot through the roof and many end up taking home loans. A great chunk of one’s income goes towards home loan EMI. So, the government has given plenty of tax benefits for house property under Section 24 of the Income Tax Act.

1. Income from House Property

Income from House Property is possible in these cases –

      • Rental Income on a let out property
      • Annual Value of a property which is ‘deemed’ to be let out for income tax purposes ( when you own more than two house property)
      • Annual Value of the property which is self occupied, which isNil

Annual Value of the property which is self occupied, which isless Municipal Taxes Paid. If the property is let out, its rent received is your Gross Annual Value. For a deemed to be let out property, a reasonable rent of a similar place is your Gross Annual Value. For a self occupied house property the Gross Annual Value is Nil.

2. Deductions Under House Property

a. Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower.

Therefore, this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc.

For a self occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.

b.Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction of up to Rs.2 lakh (Rs 1.5 lakh if you are filing returns for FY 2013-14) on their home loan interest, if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.

Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate.-

i. The home loan must be for purchase and construction of a property;

ii. The loan must be taken on or after 1 April 1999;

iii. The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken

 

3. Pre Construction Interest

When you have taken a loan for purchase or construction of a house property, you can claim a deduction on pre-construction interest. However, this is not allowed in case of the loan for repairs or reconstruction. The total amount of pre construction interest and interest on housing loan that can be claimed in a year should not exceed Rs 2 lakh in any case.

The deduction for this interest is allowed in 5 equal instalments starting from the year in which the house is purchased or the construction is completed. Example, if the construction of your property completed in FY 2018-19, on 25 June 2018, you can claim 1/5th of interest paid up till 31 March 2018 when you file your return for FY 2018-19.

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4. Conditions for Claiming Interest on Home Loan

You need to meet all the below 3 conditions to claim this deduction

a. Loan has been taken after 1st April 1999 for purchase or construction

b. The acquisition or construction is completed within 5 years (3 Years till FY 2015-16) from the end of the financial year in which the loan was taken

c. There is interest certificate available for the interest payable on the loan

Note that your interest deduction may be limited to Rs 30,000 if any one of these conditions is met –

a. Loan is borrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of house property

b. Loan is borrowed on or after 1st April 1999 for purchase, construction, repairs or reconstruction of house property.

5. Computation of Income Under House Property

Say, a person repays housing loan of Rs 4 lakh annually out of which Rs 2 lakh is the interest component. He has also incurred a pre-construction interest of Rs 3 lakh. He is earning Rs 7000 monthly from a let out property and also pays municipal taxes of Rs 3000 for the house. Let’s calculate his Income from house property in both the scenarios:

1. He has a self-occupied property, or

2. The property is rented out

Type of House Property Self Occupied Let Out
Gross annual Value (Rent paid- 7000*12) NIL 84,000
Less: Municipal Taxes or Taxes paid to local authorities NA 3,000
Net Annual Value(NAV) Nil 81,000
Less: Standard Deduction(30% of NAV) NA 24,300
Less: Interest on Housing Loan 200,000 200,000
Less: Pre-construction interest (1/5th of 3 Lakhs) 60,000 60,000
Income from House Property (260,000) (203,300)
Overall loss restricted to (200,000) (200,000)

Remember, maximum loss set off allowed in a financial year is limited to Rs 2 lakh. Remaining loss can be carried forward to future years – 8 years in total. However, in these 8 years, it can only be set off from income from house property.

 

https://cleartax.in/s/deductions-under-section24-income-from-house-property

 
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Posted by on November 21, 2019 in TDS

 

A case study on saving taxes under Section 24


Siddharth and his home loan

Section 24 of the Income Tax Act lets homeowners claim a deduction of up to Rs. 2 lakhs (Rs. 1,50,000 if you are filing returns for last financial year) on their home loan interest if the owner or his family reside in the house property. The entire interest is waived off as a deduction when the house is on rent.

Continue reading to understand how it can be claimed.

Siddarth works in Gurgaon in an IT company. He recently purchased a house in Pune. He purchased this property jointly with his father. Siddharth has taken a loan of Rs 30 lakhs and his father is not a co-borrower in this loan. His parents live in this house currently.

Siddarth’s EMI of Rs.27,000 began in August 2014.

Siddarth’s income from house property is zero because his parents live in it.

Let’s see how Siddarth can save on tax on his home loan when he files his income tax return this year.

The total of EMIs for the financial year 2014-15 is Rs. 2,16,000 (27000 X 8 months). This amount includes a payment of Rs.10,000 towards principal and Rs 2,06,000 towards interest.

Siddarth’s income from house property is zero because his parents live in it. The I-T Department considers it a self-occupied house.

Since there is no income from his self occupied house property and as a result of claiming a deduction towards interest of Rs. 2,00,000 under Section 24, Siddarth makes a loss under the head house property in his Income Tax Return.

Siddarth can subtract this loss from his taxable income this year. He can also claim his principal repayment amount of Rs. 10,000 under Section 80C. But he cannot sell this house for a period of 5 years, which ends on 31 March 2020.

 

https://cleartax.in/house-property/case-study-section-24-self-occupied-house

 
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Posted by on November 21, 2019 in TDS

 

Income from Other Sources Tax


Understanding the head of Income from Other Sources is residuary in nature. It includes incomes which are not taxable in other heads of income.

 

Income from Other Sources is one of the heads of income chargeable to tax under the Income tax Act. 1961. Any income that is not covered in the other four heads of income is taxable under income from other sources, because of this, it is known as residuary head of income. All the incomes excluded from salary, capital gains, house property or business & profession (PGBP) are included in IFOS, except those which are exempt under the Income Tax Act.

Section 56- Incomes taxable only in Income from Other Sources are

  1. Dividend Income;
  2. Income earned from winning lotteries, crossword puzzles, races (including horse race), gambling or betting of any kind;
  3. Money or movable/immovable property received without consideration or inadequate consideration during previous year;
  4. Interest on compensation or enhanced compensation received;
  5. Advance money received or money received in negotiation for transfer of a capital asset (only if the money is forfeited and it doesn’t result in the transfer of such asset).

Incomes taxable under IFOS, only if not taxable under Profits and Gains of Business or Profession (PGBP):

  1. Any sum contributed towards provident funds, ESI, etc. by employee to the employer, only if not deposited in the relevant fund;
  2. Interest earned on Securities;
  3. Income received from the letting of a plant, machinery or furniture, with or without building.

Incomes taxable under IFOS, only if not taxable under PGBP or Salaries:

  1. Keyman Insurance Policy;
  2. Salary of MP/MLA.

Income Computation and Disclosure Standards: Section 145 states that Income from Other Sources must be computed on the regular accounting methods followed by the assessee. It can be either cash or mercantile system of accounting. The Central Government has notified Income Computation and Disclosure Standards to be followed while computing the income.

Section 57- Expenditures allowed as deductions

  • Expenses incurred for realisation of dividend or interest income;
  • Deductions to the extent amount remitted within due date are authorised in respect to contribution towards funds for the welfare of employees;
  • Family Pension- deduction is allowed to the extent of 33-1/3% of pension or Rs. 15000 whichever is less;
  • Deductions for current repairs, insurance and depreciation, will be allowed for income earned by way of lease rental;
  • A deduction equal to 50% will be allowed for interest received on compensation or enhanced compensation.

Section 58- Sum not allowed as deductions while computing taxable income

  • Personal expenditure;
  • Interest or salary payable outside India without TDS deduction;
  • Wealth tax;
  • Expenditure concerning winnings from lotteries, crossword puzzles, races, and gambling, etc.; and
  • Expenses specified in Section 40A.

https://www.icicibank.com/knowledge-base/tax/income-from-other-sources.page

 
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Posted by on November 21, 2019 in TDS

 

Budget 2019: Standard deduction limit hiked to Rs 50,000


Finance Minister Piyush Goyal, in the interim budget 2019 proposes to hike standard deduction limit to Rs 50,000 from Rs 40,000, currently.

This move will bring more tax savings for the salaried class. Prior to the Budget, there were rumours that the Narendra Modi government was looking at options to give income tax benefits to the middle class.

The benefit of standard deduction from salary was introduced in Budget 2018. The deduction of Rs 40,000 was introduced in lieu of medi ..

 
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Posted by on November 21, 2019 in TDS