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Income under head house property (unrealised rent)

Rohit (CA-Final) (1485 Points)

02 October 2012

My Query is related to Unrealised Rent Under Income Tax Act,1961..

Suppose Expected Rent = `3,00,000 and Actual Rent = `30,000 per month. Unrealised Rent was `1,20,000 .

Solution :

1. Expected Rent = `3,00,000 and Actual Rent = `3,60,000 - `1,20,000 = `2,40,000 [ done as per Sec. 25A of ITA,1961 ]

2. Higher of Expected Rent and Actual Rent is `3,00,000 , So `3,00,000 will be Chargeable.

My Question : If you are charging `3,00,000 , then what is the benefit of giving deduction of unrealised rent ( `1,20,000 )

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Deepak Gupta (CA Student) (15922 Points)
Replied 02 October 2012

Originally posted by : Rohit
	My Query is related to Unrealised Rent Under Income Tax Act,1961.. Suppose Expected Rent = `3,00,000 and Actual Rent = `30,000 per month. Unrealised Rent was `1,20,000 . Solution : 1. Expected Rent = `3,00,000 and Actual Rent = `3,60,000 - `1,20,000 = `2,40,000 [ done as per Sec. 25A of ITA,1961 ] 2. Higher of Expected Rent and Actual Rent is `3,00,000 , So `3,00,000 will be Chargeable. My Question : If you are charging `3,00,000 , then what is the benefit of giving deduction of unrealised rent ( `1,20,000 )

Case 1: Let us suppose, deduction of unrealised rent is not allowed, then GAV = 3,60,000

Assuming there is no municipal taxes paid and interest on borrowed capital.

GAV - Standard deduction of 30%

= 3,60,000 - 1,08,000 = 2,52,000 (Income from HP)

Case 2: Let us suppose, deduction of unrealised rent is allowed, then GAV = 3,00,000

Assuming there is no municipal taxes paid and interest on borrowed capital.

GAV - Standard deduction of 30%

= 3,00,000 - 90,000 = 2,10,000 (Income from HP)

If deduction for unrealised rent is not allowed, the assessee will have to pay extra tax on unearned income of Rs. 42,000 (2,52,000 - 2,10,000).

Unrealised rent if recovered subsequently, will be charged to tax 100% in P.Y. in which it is realised.

However, where (actual rent received - unrealised rent) is lower due to vacancy, then ARR-UR will be treated as GAV.

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Rohit (CA-Final) (1485 Points)
Replied 03 October 2012

Thanks for such a good answer but I still have some confusions ...

I know what I am going to ask now may not be practically possible but for clearity I am asking this question...

Suppose in above Situation Unrealised Rent is 3,60,000.

Solution :

1. Expected Rent = 3,00,000 and Actual Rent = 3,60,000 - 3,60,000 = Nil

2. GAV = 3,00,000

3. Income from HP = 2,10,000 [ GAV - SD @ 30% ]

My Confusions :

1. In this Case Actual Rent received is Nil But Still he has to pay Tax ... Why ???

2. If we are recieving deduction of 1,20,000 or 3,60,000 , our taxable income is same... there is no benefit of more or less deductions ?

Opinion of CA Dr. Girish Ahuja Sir :

According to him , there is another provision in "Return of Income Tax" under which we can deduct Unrealised Rent from GAV and not from Actual Rent to get more appropriate and good answer.

( is it true ?)

Solution according to him :

If Unrealised Rent is 1,20,000

1. Expected Rent = 3,00,000 and Actual Rent = 3,60,000

2. GAV = 3,60,000

3. NAV = 2,40,000 (GAV - Unrealised Rent i.e.3,60,000 - 1,20,000)

If Unrealised Rent is 3,60,000

1. Expected Rent - 3,00,000 and Actual Rent = 3,60,000 (Assuming No Unrealised Rent)

2. GAV = 3,60,000

3. NAV = Nil (GAV - Unrealised Rent i.e. 3,60,000 - 1,20,000)

Please tell me which approach to follow or not to follow or any other suggestion ???

Deepak Gupta (CA Student) (15922 Points)
Replied 03 October 2012

Originally posted by : Rohit

Thanks for such a good answer but I still have some confusions ...
I know what I am going to ask now may not be practically possible but for clearity I am asking this question...
Suppose in above Situation Unrealised Rent is 3,60,000.
Solution :
1. Expected Rent = 3,00,000 and Actual Rent = 3,60,000 - 3,60,000 = Nil
2. GAV = 3,00,000
3. Income from HP = 2,10,000 [ GAV - SD @ 30% ]

My Confusions :
1. In this Case Actual Rent received is Nil But Still he has to pay Tax ... Why ???
2. If we are recieving deduction of 1,20,000 or 3,60,000 , our taxable income is same... there is no benefit of more or less deductions ?

Because under Income from House Property, annual value is calculated on the potential of the house property to generate income. Hence, Reasonable Expected Rent will prevail.

Opinion of CA Dr. Girish Ahuja Sir :

According to him , there is another provision in "Return of Income Tax" under which we can deduct Unrealised Rent from GAV and not from Actual Rent to get more appropriate and good answer.
( is it true ?)
Solution according to him :
If Unrealised Rent is 1,20,000
1. Expected Rent = 3,00,000 and Actual Rent = 3,60,000
2. GAV = 3,60,000
3. NAV = 2,40,000 (GAV - Unrealised Rent i.e.3,60,000 - 1,20,000)
If Unrealised Rent is 3,60,000
1. Expected Rent - 3,00,000 and Actual Rent = 3,60,000 (Assuming No Unrealised Rent)
2. GAV = 3,60,000
3. NAV = Nil (GAV - Unrealised Rent i.e. 3,60,000 - 1,20,000)
Please tell me which approach to follow or not to follow or any other suggestion ???
.
Second approach has been followed because in income tax return form, unrealised rent has been deducted from GAV and not from actual rent received.
.
In exam you can follow any of the approach, but if you follow the second approach (i.e. as per Girish Sir), then do not forget to give note for the same.
.
Note: In the form of return of income, unrealised rent has been deducted from GAV and not from actual rent received or receivable. Therefore, question has been solved by deducting the unrealised rent from GAV.
.
*** ICAI study material follows the 1st approach, i.e. deduction of UR from AR. For knowledge purpose you can learn the second approach, but for the time being, follow the 1st approach for exam purpose so that there is no chance of any confusion.

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Deepak Gupta (CA Student) (15922 Points)
Replied 03 October 2012

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Rohit (CA-Final) (1485 Points)
Replied 03 October 2012

You have done such a good work THANKS A LOT ..

For this question, I consulteed 2 Practicing CAs , 3 IPCC passed students and many Students who are prusing IPCC but non of them gave me a satisfactory answer.

Now I don't have even a minor problem or confusion in this concept....

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Rohit (CA-Final) (1485 Points)
Replied 03 October 2012

I have One More Query But from Company Law ( Prospectus )

Click Here and please answer it also -->

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Many CCIties have answer my query on this topic but I am still not satisfied because they are just suggesting me name of good books for this topic or telling me the defination under provisions of Companies Act , 1956 .

But what I need is a good explanation to my query ...