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Income from property — how computed?

QUESTION: The following has been stated in respect of `Income from house property' in the Guidance Notes for filling up return of income (ITS-3)

"A proportionate amount of the annual value is allowable as deduction for self-occupation of any part of the property or part of the year in accordance with Sec. 23(2)". Kindly clarify, (a) what the proportionate amount really means as the amount has not been quantified; (b) whether this clause is applicable, if the flat is vacant and cannot be used due to place of employment being different (the flat is located in place other than the place of employment); and (c) whether the amount paid towards insurance for the flat is rebatable?

ANSWER: Where a property is partly self-occupied and partly let out, the property is treated as two distinct properties. Since the annual value will have to be computed for let out property at either the rent received or annual value, whichever is higher, the annual value of the entire property will require to be split up between self occupied part and let out part in the proportion of usable areas available for respective occupation. Similarly, if property is self-occupied for part of the year and let out or vacant for remaining part, the annual value is split up with reference to period occupied or let out/vacant. This answers the first part of the question.

Where a residential property, not at the place of business or employment is vacant, part of which could not be occupied and was also not let out for any part of the year without any other benefit to the owner, the annual value relatable to such period of vacancy will not be included for tax purposes under Sec. 23(1)(c). It follows that no deduction would also be available for the period for which nil income is taken. This answers the second part of the question.

The amount payable for insuring property is not deductible from property income. It was so deductible under Sec. 24(1)(ii) prior to the substitution of Sec. 24 by the Finance Act, 2001 with effect from April 1, 2002, that is, assessment year 2002-03. When the standard deduction earlier confined to repairs and collection charges at 25 per cent of the annual value was enhanced to 30 per cent of such annual value with effect from assessment year 2003-04, no deduction for insurance is provided. This answers the third part of the question.

S. Rajaratnam

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