BBA 3rd Sem Instructor

GDC Baramulla Dr Mehraj Udin Ganaie

▪ Under the Income Tax Act what is taxed under the head ‘Income from house Property’ is
the inherent capacity of the property to earn income called the Annual Value of the
property. This is taxed in the hands of the owner of the property.

▪ COMPUTATION OF ANNUAL VALUE

▪ GROSS ANNUAL VALUE(G.A.V) is the highest of

▪ Actual rent received or receivable.

▪ Reasonable or expected market rent

▪ ANNUAL VALUE (A.V.) is the G.A.V. minus the municipal taxes paid by the owner, provided that
the municipal taxes were actually paid during the year.
▪ Income from house property is the A.V. minus the following deduction.
▪ A sum equal to 30% of the A.V. as computed above in case of let out property. In case of self
occupied property, since the A.V. is taken at Nil, 30% deduction is not allowed on it.
▪ Interest on money borrowed for acquisition/construction/repair/renovation of let out property
is deductible on accrual basis
▪
In case a property is co-owned by two or more persons, share of each
being definite and ascertainable, then the income from house
property of each person shall be separately determined as per their
respective shares. If he share is not definite and ascertainable, then
owners shall be assessed as an ‘Association of Persons’.
Loss under this head of income can be set-off against any other heads of income
arising during the same year. From Assessment Year 2018-19 onwards this set-off is
restricted to Rs.2 lakhs for each assessment year. The balance of unabsorbed loss
can be carried forward to be set-off only against the income from house property in
the succeeding eight assessment years.
Income from certain properties are exempted from taxation under this head of
income. Some of these include : Income from farm house, Annual value of any one
palace of an ex-ruler, Property income of a local authority, university/ educational
institution, approved scientific research association. political party. Properly used for
own business or profession. One self occupied property, House property hold for
charitable purposes.
A person who has received possession of a property under ‘Part Possession’ u/s 53A
of Transfer of Property Act is deemed to be owner of such property.
An individual who transfers the house property without adequate considerations to
his spouse/son/married daughter etc. will be deemed to be owner of such property.
The holder of impartible estate shall be deemed to be owner of such estate.
Members of co-operative societies, company or other associations, who the building
or its part is allotted/leased will be deemed to be owner of such allotted/leased
parts.
Any person who is in occupation of a leased house property and the leased period is
more than 12 years, then such person will be deemed to be owner of that house
property.
▪ Business Incomes Taxable under the head of ‘Profit and Gains of Business or
Profession’ (Section 28).
▪ Business Income Not Taxable under the head ‘Profit and Gains of Business or
Profession’
▪ Mode of Taxation on Certain Incomes (Section 145B)
▪ Basic Principles for Computing income Taxable under the head ‘Profit and Gains of
Business or Profession’
▪ Profits and gains of any business or profession;
▪ Any compensation or other payments due to or received by any
person specified in section 28(ii);
▪ Income derived by a trade, professional or similar association
from specific services performed for its members;
▪ The value of any benefit or perquisite, whether convertible into
money or not, arising from business or the exercise of a
profession;
▪ Any profit on transfer of the Duty Entitlement Pass Book Scheme
▪ any profit on the transfer of the duty free replenishment
certificate;
▪ export incentive available to exporters;
▪ any interest, salary, bonus, commission or remuneration received by
a partner from firm ;
▪ any sum received for not carrying out any activity in relation to any
business or profession or not to share any know-how, patent,
copyright, trademark, etc.;
▪ fair market value of inventory as on the date on which it is converted
into, or treated as, a capital asset determined in the prescribed
manner;
▪ any sum received under a Keyman insurance policy including bonus;
▪ any sum received (or receivable) in cash or kind, on account of any
capital asset (other than land or goodwill or financial instrument)
being demolished, destroyed, discarded or transferred, if the whole
of the expenditure on such capital asset has been allowed as a
deduction under section 35AD; and
▪ income from speculative transaction.
▪ Rental income in the case of Dealer in Property

▪ Dividend on Shares in the case of a Dealer-in-Shares

▪ Winnings from Lotteries, etc.

▪ Interest received on Compensation or Enhanced Compensation

Section 145B has been inserted by the Finance Act, 2018. It is
applicable from the assessment year 2017-18 onwards. It provides
mode of taxation of the following incomes –

1. Interest received by an assessee on compensation or on enhanced

compensation, shall be deemed to be the income of the year in
which it is received (however, it is taxable under section 56 under
the head “Income from other sources”).
2. The claim for escalation of price in a contract or export incentives

shall be deemed to be the income of the previous year in which

reasonable certainty of its realisation is achieved.

3. Assistance in the form of subsidy (or grant or cash incentive or duty

drawback or waiver or concession or reimbursement) as referred

to in section 2(24)(xviii) shall be deemed to be the income of the
previous year in which it is received, if not charged to income tax
for any earlier previous year.
▪ Business or profession carried on by the assessee

▪ Business or profession should be carried on during the previous year

▪ Tax incidence arises in respect of all businesses or professions

▪ Legal ownership vs. Beneficial ownership

▪ Real profit vs. Anticipated profit

▪ Real profit vs. Notional profit

▪ Recovery of sum already allowed as deduction

▪ Mode of book entries not relevant

▪ Illegal business
The following are the essential conditions for Taxing capital gains:

A. There must be a capital asset;

B. The capital asset must have been transferred;

C. There must be profits or gains on such transfer, which will be known as

capital gain;

D. Such capital gain should not be exempt under section 54, 54B, 54D, 54EC,

54EE, 54F, 54G, 54GA or 54GB.

“Capital asset” means property of any kind, whether fixed or circulating, movable or
immovable, tangible or intangible.

Besides, it Includes
1. Any rights in or in relation to an Indian company, including rights of
management or control or any other rights whatsoever.
2. Property of any kind held by an assessee (whether or not connected with his
business or profession).
3. Any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the SEBI Act.
But Does Not Include –– any stock-in-trade [other than the securities referred to in sub-
clause (b) above], consumable stores or raw materials held for the purposes of his
business or profession, personal effects, that is to say, movable property (including
wearing apparel and furniture), held for personal use by the assessee or any member of
his family dependent on him. However, the following assets shall not be treated as
personal effects though these assets are moveable and may be held for personal use:
▪ jewellery;
▪ archaeological collections;
▪ drawings;
▪ paintings;
▪ sculptures; or
▪ any work of art.

Agricultural land in India, which is not an urban agricultural land. In other words, it must
be a rural agricultural land;
Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates
issued under Gold Monetisation Scheme, 2015 notified by the Central Government.
Capital assets are of two types:
1. Short-Term Capital Asset - STCA [Section 2(42A)]: A capital asset held by an
assessee for Not more than 36 months immediately preceding the date of its
transfer is known as a short-term capital asset.
Exceptions :
The following assets shall be treated as short-term capital assets if they are held for
Not more than 12 months (instead of 36 months mentioned above) immediately
preceding the date of its transfer:
▪ A security including shares (other than unit) listed in a recognised stock exchange
in India
▪ A unit of an equity-oriented fund
▪ A zero-coupon bond
The following assets shall be treated as short-term capital assets if they are held for
Not more than 24 months (instead of 36 months/12 months mentioned above)
immediately preceding the date of its transfer:
▪ Share of a company (not being a share listed in a recognised stock exchange in
India)
▪ An immovable property being land and building or both.
▪ Hence, if unlisted share or immovable property is transferred after 24 months from
the date of its acquisition, the gain arising from the transfer of share or immovable
property shall be treated as long-term capital gain.
2. Long-Term Capital Asset - LTCA [Section 2(29A)]:
It means a capital asset which is not a short-term capital asset.
In other words, if the asset is held by the assessee for more than 36 months/24
months/12 months, as the case may be, such an asset will be treated as a long-term
capital asset
1. Section 2(42B) Short-Term Capital Gain —
Gain arising on the transfer of short-term capital asset.

2. Section 2(29B) Long-Term Capital Gain —

Gain arising on the transfer of long-term capital asset.
Normally, capital gain arises in the previous year in which the transfer of the asset
takes place even if the consideration for the transfer is received or realised in a later
year.
There are, however, 4 exceptional cases where capital gain is taxable not in the year
of transfer of the asset, but in some other year. These exceptions are:
1. Damage or destruction of any capital asset by fire or other calamities
2. Conversion of capital asset into stock-in-trade (discussed in para 7.13c);
3. Compulsory acquisition of an asset (discussed in para 7.13f).
4. Transfer of capital asset, being land or building or both by an individual HUF
under a specified agreement with the developer [Section 45(5A)]
As per section 56(1), income of every kind, which is not to be excluded from the total
income under this Act, shall be chargeable to income-tax under the head "Income
from Other Sources" if it is not chargeable to Income-tax under any of the first four
heads specified in Section 14.
Income from other sources consist of two main categories and they are recurring
income and non-recurring income.
1. Recurring income: Any income received at regularly at equal intervals. This
generally includes interest income from the savings bank, post office savings,
fixed deposits, recurring deposits etc.
2. Non-recurring income: Any income received only once. This generally
includes Income from the lottery, gambling, horse racing etc.
1. Dividend: Dividend is chargeable at a rate of 10% if the aggregate amount of
dividend during that year exceeds Rs. 10,00,000. This is applicable to
individuals/HUFs. If you receive a dividend from a domestic company and it is
chargeable under dividend distribution tax, then you will get an exemption.
2. One-time income: Income from lotteries, crossword puzzles, horse races, games,
gambling or betting.
3. Interest on securities if it is not taxable under “Profits and Gains of Business or
Profession”.
4. Income from machinery, plant or furniture belonging to taxpayer and let on hire. This
is applicable if income is not chargeable to tax under the head ‘Profits and Gains of
Business or Profession’.
5. Composite rental income from letting of plant, machinery or furniture with buildings,
where such letting is inseparable. Again, this is applicable if this income is not
taxable under the head ‘Profits and Gains of Business or Profession’.
6. Any sum of money or property received by an individual or HUF from any person will be
taxable under income from other sources. The exception is applicable only if you receive the
amount/property from your relatives*. (Take a look at the list of relatives as defined by ITD –
Relative list)
▪ If you receive any amount without consideration and is more than Rs. 50,000 during the previous year, then the whole

amount will be taxable.

▪ If you receive an immovable property without consideration and the stamp duty value exceeds Rs. 50,000, then the stamp

duty value of such property will be taxable.

▪ If you receive an immovable property for a consideration which is less than the stamp duty value of the property by

higher of the following amount the difference is taxable:

▪ the amount of Rs. 50,000

▪ the amount equal to 5% of the consideration

▪ If movable properties** is received without consideration and the aggregate fair market value of such properties

exceeds Rs. 50,000, then the whole of the aggregate fair market value of such properties will be taxable.

▪ If movable properties are received for a consideration which is less than the aggregate fair market value of properties by

an amount exceeding Rs. 50,000, the difference between the aggregate fair market value and the consideration is taxable
6. If an employee receives any compensation due to the termination of his
employment or modification of terms and conditions relating to the job, then that
amount will be taxable.
7. Any sum of money received as an advance or otherwise in the course of
negotiations for the transfer of a capital asset shall be charged to tax under this
head, if:
a. The sum is forfeited; and
b. The negotiations do not result in the transfer of such capital asset.
You can calculate the tax on income from other sources in 2 different ways.
If the income is from a non-recurring source, then a tax of 30% is directly applicable to
the total income amount. (Rs.1 lakh, then tax of Rs. 30,000 )
The total taxable amount will be added to your other taxable incomes. Thus, the payable
tax will be as per the existing income tax slab.
Example: If you are getting any family pension of Rs. 50,000, then you will get an
exemption of 33.33% or 15000, whichever is the least.
33.33% of 50000 = 16665 or 15000. Since 15,000 is the lesser amount, that will be the
exemption amount.
So taxable income will be 50000 – 15000 = 35,000.
35,000 will be then added to other income and income tax slab will be applied on total
taxable income.