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Home » Commercial, Real Estate Developers

Faults in house property regime

Submitted by on Saturday, 19 September 2009No Comment

 The tax on income from house property has all along been on one’s potential income and not on one’s actual income unless the latter happens to be greater than the former. The Direct Taxes Code strays away from its basic objective by factoring the cost of construction or purchase where rateable value has not been fixed by the municipal authorities.
Briefly, what is proposed by the DTC is income from house property would be deemed to be the actual rent receivable or the presumptive rent, whichever is greater. And the presumptive rent is deemed to be 6% of the rateable value fixed by municipal authorities or if it is not so fixed, then 6% of the cost of acquiring the house.
Under the extant regime, market rent is a significant factor in determining the potential rent. The Government perhaps feels that figuring the market rent is difficult given the various subterfuges adopted, such as camouflaging a part of the rent as interest-free or concessional deposits, etc.
Therefore, it seems to have plumped for the rateable value which to be sure is also premised on the market rent without being property-specific. But then the danger of this approach is the municipal authorities do not bestir to revise the rateable value every year. In the event, what is considered for income-tax purposes may be outdated and inappropriate even though it may be appropriate for levying municipal tax.

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