REPLY :  

Capital gain is the difference between sale consideration and cost of acquisition plus cost of improvement. Therefore it is important to know the cost of acquisition for the owner at the time of sale.

Your father is the owner of the house who has inherited it from his father. In case of inherited properties, the cost to the original owner is taken as the cost in the hands of heir. Thus the cost at which your grandfather acquired the property should be taken as cost of the property in the hands of your father.

Having said that, law also provides that where the cost in the hands of original owner (grandfather) is not ascertainable, then fair market value at the time of acquisition by original owner (grandfather) should be taken as cost of acquisition. Thus fair market value of the house at the date of allotment i.e. 1947 should be considered.

To this should be added the cost of construction of another floor in 1979 to arrive at the total cost of the house property.

Further, law also acknowledges the inflationary impact on the properties over these years and has provided that assessee should be given an option to choose from the cost of acquisition so arrived at and the fair market value as on 1.4.1981 while calculating the capital gains. In addition this fair market value would also be entitled to indexation to determine the present value of the cost of the property.

Thus in your case, the fair market value as on 1.4.1981 may be taken as the cost of acquisition in the hands of your father at the time of sale and it should further be indexed to arrive at indexed cost of acquisition.

Please note that, only expenditure incurred in making any addition or alteration to the house property on or after 1.4.1981 would qualify as cost of improvement.

REPLY :  

Receipts of compensation from insurance companies in case of capital assets was treated as exempt till 31.3.2000 as per the verdict of Supreme Court pronounced in case of Vania Silk Mills (P) Ltd. It stated that there is no transfer and hence no capital gains in case the capital asset is destroyed. The money received from the insurance companies was treated as compensation by virtue of contract and not a sale consideration.

However, with the introduction of Section 45 (IA) any profit or gain arising on account of receipt of compensation from the Insurance Company will be taxable as capital gain in the year in which compensation is received.

Thus, if there is an element of profit in the compensation so received, you should offer it for capital gain tax.

REPLY :  

Income from house property is taxed on notional basis, even if not actually earned. Only one house in occupation of the owner for the purpose of his own residence is tax exempt. In a case where a person owns more than one house property and occupies them for the purpose of his residence or for the residence of his family members, the act allows exemption in case of one house property so chosen by the owner. Other house shall be subject to tax as if it is let out.

Thus you should calculate house property income from both the houses and opt one with higher income as self occupied.

REPLY :  

Benefit of flat deduction of 30 % to cover miscellaneous expenses in the nature of repairs, renovation, insurance, etc while calculating income from house property is available only to owners. In fact ownership of property is must for taxing income under the head ‘Income from House Property’. Income from subletting of the property by a tenant is rather taxed under the head “Income from other sources” wherein only actual expenditure incurred is allowable as deduction.

REPLY :  

Section 26 of the Income Tax Act provides that where a house property is owned by two or more persons and their respective shares are definite and ascertainable, then the income from such house property shall be computed separately in the hands of the co-owners in accordance with the provisions of sections 22 to 25. Which means that all the deductions allowable to a person shall be allowed separately to the co-owners of a house property. To be able to enjoy the benefit given by these provisions the co-owners must have definite and ascertainable shares in the house property. You have not clarified the shares put in by yourself and your wife in purchase of the property. Also you have not disclosed as to who in fact intended to take loan from HUDCO. Presuming that both you and your wife intended to share this property equally, have put in equal shares of funds by borrowing and from own funds, both you and your wife can claim separate deduction on account of interest payable on borrowed funds. Interestingly for the purpose of this clause a co- owner can claim full deduction even if his/her share in the property is uneven.

Therefore your wife will be able to claim deduction of interest to the extent of Rs.1,50,000/- in case it is self occupied property and without any upper limit in case the house is rented out.

It will not be out of place to mention here that any payment to the extent of Rs.20,000/- towards any installment of loan for construction or purchase of any residential house property from a specified authority or from housing board is entitled for a rebate under section 88 provided the same expenditure has not been claimed as deduction under income from house property.

 Therefore, in addition to claiming deduction of interest your wife can also claim rebate under section 88 in respect of principal amount paid.

REPLY :  

Swapping one residential house against another residential house has been facilitated by way of tax exemptions provided some specified conditions are fulfilled. One of the conditions is that the new house so constructed or purchased must be a ‘residential house’. Though the word ‘residential house’ has not been defined under the Income- tax Act, but the dictionary meaning of residence is a place where human beings eat, drink and sleep. This view has also been supported by various judgments. Delhi High Court has recently held that where building is not worth occupying or habitable and the assessee is not in occupation of new building the tax relief can not be granted. You are not using the property for residential purposes. Rather a departmental store has been opened thereby making it a fully commercial place; the tax benefit envisaged under the scheme would not be available to you.

For the purpose of obtaining full information in respect of income or the loss of any person, the Assessing Officer may make such inquiry, as he considers necessary. There is no bar on him to visit the place.

REPLY :  

Section 88 of the Income Tax Act allows rebate only on account of payments made against housing loans taken for construction/purchase of house. Loans for renovation does not qualify for rebate under this section. However the interest paid by you against the renovation loan can be deducted from your income under the head `Income from House Property.

REPLY :  

Income from house property is taxed on notional basis, even if not actually earned. Only one house in occupation of the owner for the purpose of his own residence is tax exempt. In a case where a person owns more than one house property and occupies them for the purpose of his residence or for the residence of his family members, the act allows exemption in case of one house property so chosen by the owner. Other house shall be subject to tax as if it is let out.

Thus you should calculate house property income from both the houses and opt one with higher income as self occupied.

REPLY :  

On sale of half constructed property you would incur capital loss. Though as a rule one can adjust losses under one head of income against other heads of income but capital losses can be adjusted only against capital gains. The balance loss, if any can be carried forward for eight assessment years and shall be set off against income under the head Capital Gains.

Thus you are not entitled to offset loss on account of sale of half constructed property against salary income.

REPLY :  

Income of a person resident in India is liable to be taxed in India irrespective of the place of accrual. Taxes have to be paid on total income arising anywhere in the world. Similarly rental income earned from a house property situated anywhere in the world is also taxable in India. The rule applicable for taxation of income from ‘House Property’ would apply as if the property is situated in India. After deduction of Municipal taxes paid abroad a flat deduction of 30 % of annual value would be allowed on account of repairs and other miscellaneous expenses.

However, it is pertinent to note that double taxation avoidance agreement with the country where the property is situated, would prevail over the above law.

REPLY :  

Benefit of flat deduction of 30 % to cover miscellaneous expenses in the nature of repairs, renovation, insurance, etc while calculating income from house property is available only to owners. In fact ownership of property is must for taxing income under the head ‘Income from House Property’. Income from subletting of the property by a tenant is rather taxed under the head “Income from other sources” wherein only actual expenditure incurred is allowable as deduction.

REPLY :  

One can avoid paying capital gains tax arising on account of sale of residential property if the capital gain is used (a) to purchase another residential property one year before or two years after the sale, or (b) to construct another residential house within three years of sale. Now the question arises whether you can claim exemption under section 54 for investments made in a society flat where the payments are made in installments. The answer is Yes! It would be assumed as if you are constructing your own house and the installments made within three years i.e. from 2001 to 2003 would make you eligible for claiming deduction provided you keep unutilised gain in capital gain account scheme and make the payments from it.

REPLY :  

There is a wrong notion that the interest deduction on purchase of residential property is allowable only in case of borrowed money. You will be eligible to claim deduction of the interest component in the installment paid. Secondly it is not necessary that the sale consideration has been paid in full or in part to be eligible for claiming deduction of the interest. Same view was held in CIT vs. R.P. Goenka and J.P. Goenka, where a person acquired a property and paid only part of the sale consideration. Interest paid on the unpaid purchase consideration qualified for deduction in the computation of income from such property.

Further in case of self-occupied residential properties acquired or constructed out of loan borrowed on or after 1.4.99, interest shall be allowed as admissible deduction upto Rs. 75,000 instead of the limit of Rs. 30,000 provided such acquisition or construction is completed before 1.4.2001. In case of older properties it is Rs. 30,000 only. However in case of properties let-out there is no prescribed upper limits and full interest is deductible. Also it is not necessary whether full property is let out or only a portion is let out. Therefor, in your case the full amount of interest is deductible. However you would have to segregate the interest component from the installment .

REPLY :  

Builder agreements or development agreements by what ever name called also attract pre-emptive right of purchase by the Government if the value of the property being transferred exceeds a specified value. As per the existing laws, every seller of a property located in Delhi and having market value in excess of Rs. 50 lacs is required to apply in Form 37 I to appropriate authority for clearance. If the appropriate authority feels there is understatement as to the market value of the property being transferred, then the government has the first right to purchase the property from the seller at the stated value. 

In your case the subject matter of the proposed transfer is two flats and rear portion of the basement. It does not matter how the agreement is worded or drafted. The basic intention is to transfer a part of the newly constructed property including undivided share in land in exchange of the services provided and the cost of construction incurred by the builder. The same view was held in the case of Ashok Leyland Finance Ltd. by the Madras High Court and it was held that law also applies to development agreements. 

The value for the purpose of filing Form 37- I would be taken as the fair market value of the property at the time of transfer, i.e. Rs.1.35 crores. This being more than the limit prescribed, in my opinion you should not take chance and must file a statement of agreement in form 37 -I to the appropriate authority constituted under the Income- tax Act, for income tax clearance.

REPLY :  

For and from Assessment Year 1995-96, tenancy rights have become taxable as capital gain. Your father exchanged one capital asset with another, i.e. tenancy rights with a flat in new building on 15th August 1997. The Capital gains equal to the 'Fair Market Value' of the flat as on 15th August, 1997 were taxable in the hands of your father, since the cost of acquisition of the tenancy right was nil.

As far as sale of the flat by you and your family is concerned, the date of acquisition of the house property shall be deemed to be 15th August 1997 when the new flat was constructed and occupied by your father. By virtue of section 55(3) the cost of acquisition shall be taken to be the fair market value as on 15.8.1997. After the expiry of your father, in May 1999, you and your brothers/sisters became co-owners of the property having equal rights to it i.e. 1/4th each and hence each one of you shall be assessed separately for his/her share of Capital gain whether long term or short term. If the property is sold after 15.08.2000, then there shall be a long-term capital Gain. Otherwise there shall be short-term capital gain.

There are no schemes to save tax on short-term capital gains.

Schemes available for saving tax on long term capital gains are:

a) Investment of long-term capital gains into purchase of another residential house property within one year before or two years after sale and/or construction of a residential house within three years, exempts the gain from tax. However the house property so purchased or constructed should not be transferred within three years from the date of acquisition.

b) Investment of capital gains in the bonds issued by National Bank Of Agricultural And Rural Development (NABARD) or the bonds of National Highway Authority Of India (NHAI), with a lock in period of three years.

However the gain can also be offset against long-term or short-term capital loss accrued during the year / carried over from earlier years.

REPLY :   

Yes , you can claim loss on account of municipal taxes paid by you which are allowable on payment basis. The net annual value( NAV) of the rented house property would be arrived at after deducting municipal taxes paid from the rent received. Further you can also claim deductions under 24(1) except, deduction on account of repairs as the same is not allowed in case of negative NAV. ~

REPLY :  

Income out of joint property with ascertainable shares is assessable separately in the hands of co-owners proportionate to their share in the property. Therefore both you and your brother shall be assessed separately for rent received in proportion to respective share in the property, i.e. 50%. Also both of you are individually entitled for claiming full deductions for repairs, municipal taxes, interest etc as per the law.

Therefore, you should take separate rental cheques of Rs. 6,000 each even though there is only one rent agreement for the whole property.

REPLY :  

Under the provisions of IT Act, only borrower of the money is entitled for claiming deductions/rebate towards repayment of housing loan and interest thereon to the lender. Nexus of borrower and the lender must exist. In case any body else makes repayments, then he or she is not eligible for any deductions and rebates. The same view was held in a case by Gujrat High Court.

REPLY :  

Section 88 envisages that only owner of the house property is eligible to claim rebate towards repayments of installments on loan borrowed for purchase or construction. In your case, the house is in the name of your mother but the loan would be taken by you. Since you are not the owner of the house, you are not eligible for any rebate. Even your mother can not claim any rebate in spite of being an owner, as repayments would be made by you and not by the owner.

Section 24 provides that in case of self-occupied property, deduction of Rs.100,000 per annum is allowable towards payment of interest on borrowed capital for purchase/construction/reconstruction/repair/renovation. Here again only owner occupied properties are eligible for deduction. Therefore you will not get any deduction.

Remember the loan should have been borrowed on or after 1.4.99 and property acquired/constructed before 1.4.2003.

As apparent from your query, the new portion can be transferred into your name as per family settlement. I suggest following course of action to maximise tax advantage:

• Obtain roof rights as gift from your mother and get it registered in your name.
• Take loan and complete construction before 1.4.2003
• Since the first floor would be in your self-occupation, there would be no income under the head income from house property, but still you shall be entitled to offset interest paid as a loss against income from other sources.

REPLY :  

U/s 88 of the Income- tax Act, no deduction is allowed for payments towards admission fees, cost of share and initial deposit, which a shareholder of a company or a member of society has to pay for becoming shareholder or member. Therefore you will not get any deduction on this amount. Further, section 24 deals with payments of revenue nature. Since the payment of Rs.1,00,000 to the original allottee is a capital expenditure, it will not be allowed as a deduction while computing income from house property.