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.

Disadvantages of direct taxes

In direct tax, burden of tax cannot be shifted. The disadvantages of direct taxation are mainly due to administrative difficulties and inefficiencies. The extent of direct taxation should depend on the economic state of the country. A rich country has greater scope for direct taxation than a poor country. However, direct taxation is an important aspect of the modern financial condition.

What is Direct Tax?

A tax that is paid directly by an individual or organization to the imposing entity. A taxpayer pays a direct tax to the government for different purposes, including income tax, wealth tax, property tax, capital gain tax, gift tax, corporate/company tax, etc.

Advantage of Direct Tax

In case of direct tax, the tax-payer is the tax-bearer. The impact i.e. the initial burden and its incidence i.e. the ultimate burden of direct tax is on the same person.

Advantages/merits of direct taxes: 

How to induction of a member of a company?

One can be a member of a company by any of the ways mentioned hereunder:

1. by subscribing to the memorandum of association 

2. by agreeing in writing 

- by application and allotment of shares 

- by taking a transfer of shares

- by transmission of shares 

3. By holding equity shares capital of a company whose name is entered as beneficial owner in the record of the Depository.

4. Estoppel i.e. by allowing his name to be in the register of members or otherwise holding himself out or allowing himself to be held out as a member.

Who can become a member of a company?

Every Company is comprised of members though in the contemplation of law a Company is an entity distinct from its constituent members. In all important matters a Company can act only through its members. Only members of a Company are entitles to receive a notice of annual and other general meetings, to exercise voting rights at such meetings and to inspect the Register of Members and others statutory registers maintained by a Company and so on. A Company is created by the members and runs for the members and after the objectives for which it is promoted is achieved, is also wound-up by the members. 

Effect of Alteration in Memorandum or Articles

Notwithstanding any thing in the memorandum or articles of a company, no member of the company shall be bound by an alteration made in the memorandum or articles after the due on which he becomes, member, if and so far as the alteration requires him to take or subscribe for more shares than the number held by him at the date on which the alteration is made, or in any way increases his liability is at that date to contribute to the share capital of, or otherwise to pay money to the company.

Alterations, Changes and Modifications of the Articles of Associations

Any alterations, changes, modifications or amendments of the Articles of Associations also require certain statutory steps/measures:

a. Resolution of the Board of Directors
b. Special Resolution of the Members as per Sec 20
c. Filing of return to the RJSC along altered articles of association through Form-VIII.
d. Obtain certified copy of the articles of association along with amendments.

Restriction on Alteration/Amendment of Memorandum

Alteration/Amendment of Memorandum has got some statutory obligations and effect which must not be ignored. Section 10 express that, “a company shall not alter the conditions contained in its memorandum except in the cases and in the mode and to the extent for which express provision in made in the Act.”

Alterations, Changes and Modifications of the Memorandum of Associations

Any alterations, changes, modifications or amendments of the Memorandum of Associations require certain statutory steps/measures:

Name Clause requires :
a. Resolution of the Board of Directors
b. Name clearance from RJSC
c. Special Resolution of the Shareholders as per sec-11(6)
d. Filing of Return to the RJSC through Form-VIII within 15 days as per sec-88
e. Obtain Certified Copy of the Memorandum along with amendments

Address Clause requires :
a. Resolution of the Board of Directors
b. Filing of Return to the RJSC through Form-VI within 28 days as per sec 77(2)
c. Obtain Certified Copy of the Memorandum along with amendments

Object Clause requires :
a. Resolution of the Board of Directors
b. Special Resolution of the Shareholders
c. Permission from High Court as per sec-12(2)
d. Filing of Return to the RJSC along with court order through Form-VIII as per sec-15 and 88
e. Obtain Certified Copy of the Memorandum along with amendments

Capital Clause requires :
a. Resolution of the Board of Directors
b. Special Resolution of the Shareholders
c. Filing of Return to the RJSC through Form-IV along with fees for additional capital as per 53(4) and 56
d. Obtain Certified Copy of the Memorandum along with amendments

Subscriber Clause: This clause cannot be change.

Articles of Association

The Articles of Association is the constitution for internal administration of the Company. The Articles of Association define the company's purpose and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled. 

Memorandum of Association

The Memorandum of Association is the basic constitution of the Company or it lays the foundation of the Company. The Memorandum binds the Company and its member to the extent as if they had been signed and sealed by each member to observe all the provisions of the memorandum and memorandum must be filed with the Registrar.

The Memorandum of Association must contain the following clauses according to the section 5 to 8 of the Act

Nature of Fire Insurance

The occurrence of a fire will result not only in loss or damage to material property but also other consequential losses such as loss of production causing loss of profit. The function of fire insurance is to make good the financial loss suffered as a result of fire. 

Definition of Fire Insurance

Fire insurance has not a long history. The real establishment of fire insurance came only after the great fire of London in 1066. This fire lasted for four days and nights burning over 436acres of ground and destroying over 13,000 buildings was the most disastrous fire in history and forcibly awakened the people to the necessity for a form of protecting against such calamities.

Principles of Insurance

Many insureds do not understand a common fundamental legal principle known as the "Principle of Indemnity Principles of Insurance. These are five principles of insurance that are important to understand to ensure that your insurance policies are covered on the correct basis.

How to convert public limited company into private limited company

According to Section 231 and 232 of the Companies Act 1994 a public limited company may convert into private limited company by fulfilling the following condition:

How to covert private limited company into public limited company?

According to Section 231 and 232 of the Companies Act 1994 a private limited company may convert into public limited company by fulfilling conditions as mentioned below :

How a company is incorporated?

The promoters or the sponsors take the initiatives to incorporate a company under the Companies Act.  A three stage process is taking place in regard to incorporate of a company, such as 1. Promotion 2. Incorporation/Registration and 3. commencement of business.

What is Notice of Abandon?

Notice of abandon is a formal notice of relinquishment or unconditional surrender of all rights to a property, cargo, or ship by its insured owner to the insurer in the event of a constructive total loss.

What is Fire Insurance?

A Contract of fire insurance includes a contract that insures the property therein described against loss or damage by fire and against loss or damage from other hazards that may be insured under a license to transact fire insurance.