How to Calculate Income from House Property

Scope:

Section-24 is confined to “buildings and lands appurtenant thereto which may be conveniently called house property”. Tax under this section is levied upon owner, legal or beneficial and not upon the occupant. It is levied not upon the actual income from the property but upon satisfactory or artificial income represented by bonafied annual value of the property.

Income from house property is taxable on the basis of its annual value of any property, whether used for commercial or residential purposes consisting of any building, furniture, fixture, fittings etc.

Annual Value:

Annual value has been defined in section 2(3) of the Ordinance. Under section 2(3)(a) “annual value” shall deemed to be in relation to any property let out i) the sum for which property might reasonably be expected to let from year to year; or ii) where the annual rent in respect thereof is excess the sum referred to in section 2(3)(a)(i) the amount of the annual rent.

Thus, the annual value is not necessarily be the annual rental income disclosed by an assessee but the value determined as such by the tax authorities. If the annual rent is higher than the value as determined by the tax authorities on the basis of the expected rent, annual rent is considered as the annual value.

Where the property is owned by two or more persons and their respective shares are definite and ascertainable, the owners are assessable on their respective share of income from the property and not as an association of persons.

Conditions while computing Income under the head “Income from House Property”:

After analysis of the sections 24(1), 24(2) and 19(22), it is clear that the following conditions are to be fulfilled for considering any income under the head “income from house property”:

1. Assesee is the legal owner of the whole house property or the owner of a part of the property or beneficiary of the property;
2. Income should be generated form let out part and not from any part used by the owner for personal purpose or for the purpose of his business or profession;
3. Property must consist of any buildings or land/lands appurtenant thereto.
4. The house may let out for residential or commercial purposes;
5. Income is the result of gross rental received less amount of admissible expenses;
6. In case of joint ownership, then only proportionate income from such a property will be considered as income from house property of the assessee;
7. Any advance against rent is also considered as the income from house property subject to some conditions in assessment procedure.

Allowable deductions:

As per section-25, while determining the net income under income from house property, the following deductions are allowable:

• In respect for expenditure for repairs, collection of rent, water and sewerage, electricity and salary of darwan, security guard, pump-man, lift-man, caretaker and all other expenditure related to maintenance and provision of basic services:
• an amount equal to 25% of  the annual value of the property in respect of all expenses mentioned in (i) above where the property is used for residential purpose;
• an amount equal to 30% of the annual value of the property in respect of all expenses mentioned in (i) above where the property is used for commercial purpose;
• Any premium paid to insure the property against risk of damage or destruction;
• Interest on mortgage or other capital charge for the purposes of reconstruction, extension or improvement of the house property borrowed only from bank or financial instruction;
• Any tax not being a capital charge leviable on annual basis;
• Ground rent;
• Any sum payable to Government as land development tax or rent on account of the land comprised in the property;
• Interest payable on capital borrowed for the purpose of acquisition, construction, reconstruction, repair or renovation of the house property;
• Provided that where the property or a portion thereof is self-occupied and acquired, constructed, renewed or reconstructed with borrowed capital, the amount of any interest, payable on such borrowed capital not exceeding Tk. 20 lac, shall be deducted from total income.
• Where the property has been constructed with borrowed capital and no income was earned during the period of construction, interest payable during that period on such capital, in three equal proportionate installments of subsequent 3 years for which income is assessable from that property;
• Proportionate vacancy allowance of the period for which the property remains wholly unoccupied and in case of partly let out property such portion of annual value appropriate to the vacant part as is proportionate to the period of the vacancy of such part.

Interest or annual charge payable outside Bangladesh shall not be allowed as deduction on which tax has not been paid or deducted at source.