Income Tax

When it comes to owning property, there are several expenses that must be considered, such as rent, fees, taxes, upkeep, and insurance. In India, these expenses are recognized as tax-deductible under section 30 of the Income Tax Act, 1961. Let us explore each of these expenses and their treatment under this section. Rent is eligible for tax deduction if a property owner rents out their property for business or professional purposes. However, the rent must be reasonable and consistent with the current market rates. Property owners are required to pay various fees and taxes to local authorities, such as property tax, sewage tax, and water tax. Under section 30, these fees and taxes are deductible if they are solely incurred for business or professional purposes. Expenses incurred for maintenance and repairs to keep the property functional are also tax-deductible under section 30. This includes expenses for painting, repairing electrical fixtures, replacing broken tiles, and other similar expenses. However, expenses for property improvements or renovations that add value to the property are not considered repairs and are instead treated as depreciation. Insurance is essential to protect the property from unforeseen events such as fire, theft, and natural disasters. Premiums paid for insurance policies are also tax-deductible under section 30. It is essential to note that deductions under section 30 are subject to specific conditions and limitations. For instance, deductions for maintenance and repair expenses are limited to 30% of the net annual value of the property. Additionally, all expenses claimed as deductions must be substantiated with proper documentation such as invoices and receipts. In conclusion, rent, fees, taxes, upkeep, and insurance are vital expenses for property owners that can be tax-deductible under section 30 of the Income Tax Act, 1961. By utilizing these deductions, property owners can reduce their tax burden and save money. However, it is crucial to ensure that all expenses claimed as deductions are genuine and comply with the provisions of the law. section 30 of Income Tax Act, 1961 In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed— (a)  where the premises are occupied by the assessee—   (i)  as a tenant, the rent paid for such premises ; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ;  (ii)  otherwise than as a tenant, the amount paid by him on account of current repairs to the premises ; (b)  any sums paid on account of land revenue, local rates or municipal taxes; (c)  the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises. Explanation.—For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure. Other Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Are you looking to understand Income from profits and gains of business or profession, how computed?  This detailed article will tell you all about Income from profits and gains of business or profession, how computed. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have vast experience in filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions, and tax planning. Generating revenue through profits and gains from business or profession is a crucial aspect for both individuals and companies. The method of computing such income is a multifaceted process that involves considering various factors. Initially, it is vital to comprehend the definition of a business or profession as stated by the Income Tax Act. A business refers to any commercial or trade activity, whereas a profession pertains to an individual’s employment or vocation. Income generated from such activities falls under the category of income from profits and gains of business or profession, which is taxable under this head. The computation process comprises several steps, commencing with the calculation of total gross income, which includes all revenue earned during the financial year. The next step involves calculating the net profit by deducting all business expenses from the gross receipts. Expenses that can be deducted include rent, wages, repairs, interest, depreciation, and other expenses related to the business. After computing the net profit, the amount of depreciation is adjusted, and allowable expenses are deducted. Deductions can include expenses related to research and development, scientific research, salaries, and depreciation on business assets. Further, all the expenses which are allowed to be deducted from revenue are given under Income Tax per se in a detailed manner. The final step is to calculate the taxable income by deducting allowable expenses from the adjusted net profit. Tax liability is then computed on the taxable income at the applicable tax rate, which varies depending on the total income earned during the fiscal year. To ensure compliance with the Income Tax Act, individuals and companies must understand the process of computing income from profits and gains of a business or profession. It is crucial to maintain accurate records of business expenses and seek professional assistance whenever necessary. Section 29 of Income Tax Act, 1961 Section 29, of Income Tax Act, 1961 states that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D.

The imposition of taxes on profits and gains is a critical factor that businesses and professionals must consider. These taxes are based on the revenue earned from any trade, profession, or business activity carried out by an individual or a company, which can include various sources such as sales proceeds, service fees, rent, interest, or dividends. Revenue income and capital gains are the two primary categories of income that businesses and professionals generate. Revenue income is the regular income generated by their business or profession activities, while capital gains are the profits obtained from selling capital assets such as land, buildings, or shares. The calculation of taxable income for profits and gains of business or profession is done by subtracting the expenses incurred in generating the income from the gross revenue earned. To arrive at net income, income tax laws allow for a variety of deductions and exemptions, such as depreciation for fixed assets, expenses for rent, interest, and other costs, contributions to charitable organizations, and deductions for losses incurred during the course of the business or profession. The net income is then subject to taxation at the applicable tax rate, which varies depending on the country and specific tax laws in place. To ensure compliance with tax laws, businesses and professionals must be aware of the regulations governing income tax. By taking advantage of the available deductions and exemptions, they can reduce their tax liability and increase their profits. section 28 of Income Tax Act, 1961 The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—  (i)  the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ; (ii)  any compensation or other payment due to or received by,—  (a)  any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;  (b)  any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ;  (c)  any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ;  (d)  any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ;  (e)  any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business; (iii) income derived by a trade, professional or similar association from specific services performed for its members ; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ; (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ; (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; (v)  any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable, in cash or kind, under an agreement for—  (a)  not carrying out any activity in relation to any business or profession; or  (b)  not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to—   (i)  any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession, which is chargeable under the head “Capital gains”;  (ii)  any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.—For the purposes of this clause,—  (i)  “agreement” includes any arrangement or understanding or action in concert,— (A)  whether or not such arrangement, understanding or action is formal or in writing; or (B)  whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii)  “service” means service of any

In India, the ownership of a property is governed by the Income Tax Act of 1961, which has provisions for taxing income earned by individuals, corporations, and other entities. Owning a house property comes with specific tax implications, and the yearly charge associated with it is defined under Section 27 of the Act. Let’s examine what it entails to be the possessor of a house property and the concept of the annual fee. The term “owner of a house property” refers to an individual who holds the legal title to a property. This title could take the form of a freehold, leasehold, or any other recognized form of legal ownership. As the owner of the property, one is accountable for maintaining it and paying taxes related to it. According to the Income Tax Act, a house property is defined as a building or land owned by the taxpayer, which is used for either residential or commercial purposes. The property could be an apartment, house, shop, office, or any other type of building. Section 27 of the Income Tax Act states that if an individual possesses more than one house property, only one of them is considered self-occupied, and the others are treated as let-out properties. The annual value of the self-occupied property is considered zero, while the annual value of the let-out property is calculated based on the rental income that the property can generate. The annual fee pertains to the tax imposed on the annual value of the let-out property. The annual value is computed as the higher of the actual rent received or the potential rent that the property can generate. It is crucial to note that the annual value is not equivalent to the actual rent received but is a value deemed to be the rental income that the property can generate. As an owner of a house property, one can claim certain deductions that can reduce taxable income. These deductions include a standard deduction of 30% of the annual value of the property, which covers expenses associated with maintaining the property. If an individual has taken a home loan to buy the property, they can claim a deduction on the interest paid on the loan, up to a maximum amount of Rs. 2 lakhs per year. Lastly, one can also claim a deduction on the municipal taxes paid on the property. To avoid legal issues, it is crucial to comprehend the tax implications associated with owning a house property. The annual fee is the tax levied on the annual value of the let-out property, and deductions can be claimed on expenses such as maintenance, interest on home loans, and municipal taxes. under section 27 of Income Tax Act, 1961 For the purposes of sections 22 to 26—  (i)  an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred; (ii)  the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate; (iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof; (iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof; (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof; (iv) [***] (v)  [***] (vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property. 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When multiple individuals jointly own a property, it is known as co-ownership. In India, the rules regarding such ownership are outlined in Section 26 of the Income Tax Act, which describes the tax implications of owning a property jointly. Section 26 applies to cases where a property is owned by two or more individuals who are not part of a Hindu Undivided Family (HUF). In such cases, the income generated from the property is taxed based on each co-owner’s share in the property. For instance, if Mr. A and Mr. B jointly own a property with a 50% share each and the property generates rental income of Rs. 1,00,000 per year, then each co-owner will be taxed on Rs. 50,000, which represents their share of the income. It is important to note that when co-owners are married couples, the income from the property is typically assumed to be equally shared between them, regardless of their actual share in the property. In summary, co-ownership of a property has a significant impact on tax liabilities. As such, it is advisable to seek advice from a tax expert or a chartered accountant to comprehend the implications of co-ownership on tax obligations. section 26 of Income Tax Act, 1961 Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Section 25A of the Income Tax Act offers specific provisions to landlords in India who experience issues related to non-payment or delayed payment of rent by their tenants. These provisions are relevant in situations where landlords are entitled to receive unpaid rent from their tenants, which is referred to as arrears of rent, or when tenants default on rent, which is referred to as unrealized rent. Arrears of Rent pertain to unpaid rent that landlords are entitled to receive from their tenants, which may be due to disputes between the landlord and tenant or financial difficulties faced by the tenant. According to Section 25A of the Income Tax Act, landlords are taxed for arrears of rent in the fiscal year they are received, regardless of when they were due. However, landlords may claim a deduction for expenses incurred while recovering arrears, which may include legal fees, collection charges, or other relevant expenses. Unrealized Rent pertains to rent that tenants have defaulted on and remains unpaid to landlords. This situation may arise due to disputes, tenant absconding, or other reasons. Under Section 25A, landlords can choose to adopt either the mercantile or cash system of accounting. If landlords adopt the mercantile system, the unrealized rent can be taxed in the year it became due, regardless of whether it has been received. If landlords adopt the cash system, the rent cannot be taxed until it is actually received. If the unrealized rent is subsequently received, it is taxed in the fiscal year it is received, regardless of the year it became due. It is crucial to note that the tax treatment of arrears of rent and unrealized rent may vary depending on the specific facts and circumstances of each case. Therefore, landlords should seek advice from a qualified tax professional to ensure compliance with the Income Tax Act and minimize their tax liabilities. In conclusion, Section 25A of the Income Tax Act provides landlords with relief from issues related to non-payment or delayed payment of rent by tenants. By comprehending these provisions, landlords can manage their tax liabilities and ensure adherence to the Income Tax Act. section 25A of Income Tax Act, 1961 (1) The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year. (2) A sum equal to thirty per cent of the arrears of rent or the unrealised rent referred to in sub-section (1) shall be allowed as deduction. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Earning a rental income from a property that is leased out is liable for taxation under the section “Income from House Property” according to the Indian Income Tax Act, 1961. The Act offers certain deductions from the gross rental income, thereby reducing the taxable income from the property. Section 24 of the Act lays down the specifics of these deductions. While certain deductions are permitted, there are particular amounts that cannot be deducted from the income from house property. This blog post will delve into the amounts that are not deductible from the income from house property. Municipal Taxes: Municipal taxes are calculated based on the property’s annual value and are imposed by the local authority on the property owner. However, the owner cannot claim these taxes as deductions from the income from house property. Municipal taxes are levied for maintaining local infrastructure like roads and streetlights. Standard Deduction: A standard deduction of 30% of the net annual value of the property is permitted as a deduction. But if the actual amount spent on repairs and maintenance exceeds this amount, then the excess amount can be claimed as a deduction. This means that the actual amount spent on repairs and maintenance is deductible, but not the standard deduction. Interest on Loan: Interest paid on a loan taken for the acquisition, construction, repair, or renovation of a property is deductible from the income from house property. However, if the property is self-occupied and not let out, the maximum amount of interest allowed as a deduction is INR 2 lakh per annum. Vacancy Allowance: The amount of rent lost due to the property being unoccupied is referred to as vacancy allowance. This amount is not deductible from the income from house property. Capital Expenditure: Capital expenditure is incurred on the procurement, construction, or improvement of a property. This expenditure is not deductible from the income from house property. However, depreciation can be claimed on such expenditure. Personal Use: If the property owner utilizes the property for personal purposes, the rental income earned from the property is not taxable. However, if only a part of the property is leased out and the owner uses the remaining part for personal purposes, then only the rental income earned from the leased-out part is taxable. In conclusion, comprehending the amounts that are not deductible from the income from house property is crucial when computing the taxable income from such property. Municipal taxes, standard deduction, vacancy allowance, capital expenditure, and personal use are not deductible from the income from house property. Interest paid on a loan taken for the property can be claimed as a deduction subject to specific limits. Understanding these deductions and exclusions can aid in accurately calculating the taxable income from house property. section 25 of Income Tax Act, 1961 Notwithstanding anything contained in section 24, any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Income from house property”. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

When you earn income from a property that you have rented out or that is deemed to be rented out, it is subject to taxation under the “Income from House Property” category according to the Income Tax Act, 1961. However, there are certain deductions that can be claimed to calculate the taxable income from the property. One such deduction is the standard deduction, which is 30% of the net annual value. This value is calculated by subtracting the municipal taxes paid during the year from the gross annual value. It is important to note that this deduction can be claimed regardless of the actual expenses incurred on the property. Another deduction that can be claimed is for the municipal taxes paid during the year. This deduction can be claimed by subtracting the amount paid in municipal taxes from the gross annual value of the property. However, this deduction can only be claimed if the municipal taxes were paid during the year. The interest paid on a housing loan taken to purchase, construct, or renovate the property can also be claimed as a deduction from the income from house property. The maximum deduction allowed for a self-occupied property is Rs. 2,00,000, while for a rented out property, the entire interest paid can be claimed as a deduction. The cost incurred on repairs and maintenance during the year can also be claimed as a deduction from the net annual value of the property. However, this deduction is only available if the repairs and maintenance are revenue in nature, rather than capital in nature. In cases where the property is jointly owned, each co-owner can claim a deduction for their share of the property. The share of the property is determined by the ownership agreement between the co-owners. It is crucial to remember that the deductions allowed from income from house property are subject to certain conditions and restrictions. For instance, the deduction for interest on a home loan is only applicable if the construction of the property is completed within 5 years from the end of the financial year in which the loan was taken. In summary, claiming deductions from income from house property can help reduce your tax liability. However, it is important to ensure that the deductions claimed are in compliance with the provisions of the Income Tax Act, 1961. section 24 of Income Tax Act, 1961  Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:— (a)  a sum equal to thirty per cent of the annual value; (b)  where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital: Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amount of deduction shall not exceed thirty thousand rupees : Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed two lakh rupees. Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years: Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan. Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital: Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees. 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Determining the annual value of a property is a crucial aspect of the Income Tax law, as it helps calculate the taxable income and tax payable on the property. The annual value is the rental income that a property owner can expect to earn in a year, as per the guidelines mentioned in Section 23 of the Income Tax Act, 1961. According to Section 23, the annual value is based on the actual rent received or expected to be received by the owner during the previous year, or the rent that the property is expected to yield, whichever is higher. If the property is leased out for the entire year, then the actual rent received is considered the annual value. In case the property is leased out for a part of the year, the anticipated rent for the remaining period is also taken into account. If the owner self-occupies the property for the entire year, the annual value is considered to be nil. However, if the property is used for business or professional purposes, the rent that the property would have fetched if it were leased out is taken as the annual value. If the property is neither leased out nor self-occupied, the deemed annual value is calculated based on the fair rental value of the property. The Municipal Corporation or the Municipal Council determines this value, taking various factors into account, such as the location of the property, its size, and amenities available. Furthermore, Section 23 allows certain deductions from the annual value, such as municipal taxes paid by the owner and a deduction of 30% of the annual value for repairs and maintenance expenses. In conclusion, understanding the provisions of Section 23 of the Income Tax Act is crucial for property owners to calculate the annual value accurately and determine the tax payable on their properties. section 23 of Income Tax Act, 1961 (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a)  the sum for which the property might reasonably be expected to let from year to year; or (b)  where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c)  where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.—For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules13 as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which— (a)  is in the occupation of the owner for the purposes of his own residence; or (b)  cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) The provisions of sub-section (2) shall not apply if— (a)  the house or part of the house is actually let during the whole or any part of the previous year; or (b)  any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than two houses— (a)  the provisions of that sub-section shall apply only in respect of two of such houses, which the assessee may, at his option, specify in this behalf; (b)  the annual value of the house or houses, other than the house or houses in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let. (5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil. 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Generating income through property ownership is a significant revenue stream for individuals in India. As per the Indian Income Tax Act, 1961, it is classified as one of the five types of income. This refers to the earnings derived by an individual from a property they own, either through renting it out or utilizing it for business or professional purposes. To compute the income from property ownership, individuals need to determine the annual value of the property and subtract the expenses that are permissible under the Income Tax Act. The annual value is the amount for which the property could reasonably be expected to be leased out annually. It is determined based on either the actual rent received or the municipal value of the property, whichever is higher. If the property is self-occupied, the annual value is considered to be zero. There are various deductions that individuals can claim while calculating their income from property ownership. These deductions include a standard deduction of 30% of the annual value to cover repair and maintenance costs, municipal taxes paid during the year, interest paid on a home loan if the property was bought through a loan, and unrealized rent if the property is leased but the rent remains unpaid. The income from property ownership is added to an individual’s total income and is subject to taxation at the applicable income tax rates. If the property is self-occupied, the income is considered to be zero, and no tax is payable. If the property is leased, the net annual value after deductions is added to the total income and taxed accordingly. Moreover, if the annual rent received is more than Rs. 1,20,000, the property owner must deduct TDS at the rate of 10% from the rent paid to the tenant. In conclusion, comprehending the different aspects of income from property ownership, such as its calculation, permissible deductions, and taxation, is essential for property owners. This can aid them in minimizing their tax liability and ensuring compliance with the Income Tax Act. section 22 of Income Tax Act, 1961 The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice