IT calculation on rented properties

Given this,I wish to know the manner in which income tax will be calculated on the income arising from the house that I have let out,considering that it has not been so rented out for the whole year. I think I am entitled to some vacancy allowance.

(via Email)

The house property that you own has been given out on rent,though not rented for the whole year,and you yourself have been staying in another accommodation which you do not own. Therefore,clearly,your own property is not ‘self-occupied’ during the year,nor do you wish to so self-occupy it for the rest of the year.

As such,it is a rented property and the rental income that you derive from it shall be taxable under the head ‘income from house property’. As per the income tax law,if your property is actually let out but has been vacant for part of the year,only the amount of rental income that you actually receive during the year will be taxable in your hands. There shall be no notional rental income for the period the property was not so rented out (and there was no rental income). There is no additional benefit available to you on this account,as the concept of vacancy allowance under the income tax law has been done away with long time back.

For the actual mode of calculation of your tax liability,you may contact an income tax practitioner and avail his personalised services.

•I had a property for sale for which I had received an offer from a buyer earlier last year. As is the practice here,I accepted a deposit of Rs 1 lakh from him as token money for the transaction. As per the agreement,he was to purchase the property within one month,failing which I was entitled to forfeit the amount. I did that since the buyer was not able to fulfil his part of the deal.

In November 2008,I received another offer for the property and the deal has finally gone through. I would like to know the tax implications of both the transactions. I have held the property for more than 36 months.

(Via email)

It is quite usual to have a forfeiture clause in sale agreements of properties in order to ensure that the buyer as well as the seller does not backtrack from the deal. However,the forfeited amount has a special treatment under the income tax law.

Instead of being treated as the income of the person forfeiting the deposit (the seller),this amount is reduced from the cost of acquisition of the property. Therefore,when the seller calculates his capital gains when he finally sells the property,the cost of acquisition for the purpose of calculating capital gains happens to be the actual cost of acquisition less the amount that he has forfeited from the previous potential purchaser(s) on the property. The capital gains and the subsequent tax liability are then calculated on the reduced amount.

The period of holding the property is immaterial for the treatment of the forfeited deposit,though it would be material for determining your ultimate capital gains.

•My uncle owns a property in Mumbai. Since he is now residing abroad,he has given the house on rent to a multinational company who pays the monthly rent directly into his account. He has appointed me to take care of the property as well as the income arising out of the property. I do not receive any part of his income. However,I have been told that I will be liable to file his return of income and pay tax on the property. Kindly advise.

(Via Email)

From the given details,you can be treated as the agent of the non-resident under the income tax law,as you are in-charge of his affairs in India. You may contact your uncle and ask him to give you the authority to represent you for all purposes under the income tax law,for you may need the same in the future. You may also be required file income tax returns,etc. on his behalf. l

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