Direct Taxes Code : Only actual rent for a house property to be taxed

By Sanjiv Chaudhary, KPMG

According to the Union budget 2012- 2013, the new DTC (Direct Taxes Code) will be enacted after taking into account the report of the parliamentary standing committee.

Sanjiv Chaudhary, KPMG

Simplify Tax Structure ..!

DTC is an attempt to simplify the tax structure of our country India and bring it at par with the inter national practices so that it is better understood by the common taxpayer.
Some of the important changes being proposed with respect to `income from house property' are highlighted so that investors who own a house property or are to invest in a house property can plan their investments accordingly.

Let out house property ..!

The income from letting out any house property would continue to be computed under the head `income from house property'. The income from house property would be computed on the gross realised rent less the aggregate amount of standard deductions allowed that are specified below.
 

Firstly, the amount of actual taxes paid to the local /municipal tax authorities during the financial year would be deductible from the gross rent. 

Secondly, a sum equal to 20% of the gross rent would be allowed as standard deduction in connection with repairs &  maintenance of the house property.
 

Now, under the Income Tax Act (the Act), a standard deduction of 30% is allowed for repairs & maintenance, which has been proposed to be reduced to 20% under DTC.
 

Thirdly, the amount paid towards interest on a housing loan taken for purchasing or constructing or renovating a house property would be deductible while computing income from house property. In case of a let out house property, there is no restriction on the amount of interest that can be claimed as deduction.
This is similar to the present provisions of the Act on interest payment in case of a let out house property.

Self Occupied House Property..!

 In case of a self occupied house property, a deduction up to maximum of Rs. 1.50 lakh can be claimed for the interest paid towards purchasing or constructing or renovating a house property that is self occupied during the relevant financial year.

The limit of Rs. 1.5 lakh is similar to the limit stated in the present tax regime.
Deemed to be let-out property...!
The concept of deemed to be let out house property has been proposed to be removed under the DTC.
Currently, if an individual owns more than one house property, then the additional property is considered as ‘deemed to be let-out’, and the individual is required to calculate the notional rent on the additional house property &  pay taxes on the same.
Under DTC, the individual will only be taxed on the actual rent received for a house property. As the notional rent on any additional property that is not let-out will not be considered as income from house property, any interest paid for a housing loan taken on that property will also not be eligible for deduction. This proposed change under DTC has been well received by various factions because the calculation of notional rent on `deemed to be let-out' house property has been a matter of extensive litigation in the past.

Deduction on payment of principal..!

As per the provisions of DTC, no deduction shall be allowed in connection with the repayment of principal amount of a housing loan taken against a house property. At present, a total deduction of up to Rs. 1 lakh is allowed under section 80C of the Act towards repayment of principal amount of a housing loan.

Wealth tax..!

The government is also proposing to increase the wealth tax exemption limit from the present Rs. 30 lakh to Rs. 1 crore under DTC. Individuals looking to buy a house property in the future should be mindful of these stated provisions that are being proposed under the DTC to take the advantage of the new code.
 

(The writer Mr. Sanjiv Chaudhary is the partner ­ tax at  KPMG,  schaudhary@kpmg.com. T: +91 124 334 5032) The views are personal.
Src: ET

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