Many are busy finalizing and filing their income tax returns.
The last date for filing the returns for the financial year 2015-16 is July 31. You need to ensure you have claimed all deductions available to you under the Income Tax Act
Property owners need to calculate all in comes from houses owned by them. Under the Income Tax Act, in case a person owns a property, he is liable to tax even if no rental income is actually received from it. There is a `deemed income' assumed to accrue from such properties and this income is subject to tax.
During the course of the year, a property owner in curs expenditures on the properties. These include insurance costs, interest on home loan, municipal tax, maintenance charges on different accounts, power water charges, repair’s charges, and collection charges and so on. A common question asked is whether one can claim a deduction against these expenses under the Income Tax Act.
A list of deductions provided under the Income Tax Act is exhaustive. The Act provides a list of expenses that can be claimed as a deduction while computing `Income from House Property'. All other expenditures are not allowed to be claimed as a deduction. The expenses allowed under the IT Act are:
Property owners are required to pay municipal tax on the properties to the civic agency. These are allowed to be deducted while calculating `Income from House Property'. The actual amount of such tax can be claimed as a deduction. This tax can be levied by any local authority on the house property.
To qualify for the deduction, it should be noted that the tax should have been actually paid during the previous year.
This is against the repairs and collection charges. The actual expenditure incurred on repairs and towards maintenance of the property is not allowed. The Income Tax Act allows 30 percent of the Net Annual Value (value arrived at after deducting the municipal tax from the Gross Annual Value) as repairs and maintenance expenditure.
The Gross Annual Value is the highest of rent received or receivable, fair market value or municipal valuation. If, however, the Rent Control Act is applicable, the Gross Annual Value is the standard rent or rent received, whichever is higher. A deduction is allowed on this value even if no money has been spent on repairs.
In case the amount spent is more than this figure, then also the deduction is restricted to 30 percent of the Net Annual Value and the additional amount spent is not allowed to be deducted. Also, in case the cost of repairs is borne by a tenant, this deduction is not allowed to the owner of the property.
This is by far the most significant deduction allowed under the Income Tax Act. You can claim a deduction against the interest paid on the amount borrowed for the purchase, construction, repair or reconstruction of a house. This deduction is allowed even in case of a self-occupied property. In case the property is self-occupied, the deduction is to the extent of Rs 2 lakhs per annum. However, in case the property is rented out, the entire interest paid is allowed as a deduction.
This deduction is allowed on accrual basis. That is, it is allowed even if the interest amount is not actually paid during the year.
The interest paid during the pre-construction or acquisition period will be allowed as a deduction in five successive financial years starting from the financial year in which the construction or acquisition of the property was completed.