In the present tax regime, income from house property is being assessed on the rent received or the notional value of rent determined by the municipal records. This often leads to figure-cooking and litigation. The expert committee report suggests that income should be assessed only on actual rent received. If a house you own has been kept under lock, you need not pay any income tax on the unused property. Also, in a bid to curb the practice of landlords demanding large deposits, tax will be assessed on six months' rent and 15 per cent of the balance between deposit and six months' rent.
An example. If a landlord has taken a deposit of Rs 5,400 against a three-year contract at the rate of Rs 150 per square foot per month, his income tax will be assessed on Rs 1,800 (150 x 12) per year plus 15 per cent on the difference between the deposit (Rs 5,400) and six months rent (150 x 6 = Rs 900). So his total assessment amount would be Rs 2,475 per square foot. (1800 + 15 per cent of Rs 4,500).
Assuming that the landlord has invested the deposit amount elsewhere, he will not only have to pay the 30 per cent tax on interest being earned from his investment, he would also be assessed on this extra 15 per cent. Says Rajesh Kapadia, a tax-specialist: "It would now reverse the high deposit, low rent regime in rentals of offi-ces and houses into a realistic deposit-rent combination."
In order to curb the black money in property deals, the report has indeed been radical. Tax on proceeds from sale of houses and immovable property involved a complicated progressive tax regimen that encouraged a lot of cash and unaccounted money, depriving the Government of revenue. If the house is more than eight years old, the Government will assume that the value of the house has appreciated by 40 per cent over the period on which the tax would be assessed. A 50 per cent standard deduction on this difference would
make the income assessable for only 20 per cent of the sale price. A 30 per cent income tax on this amount would be equivalent to only six per cent tax on the declared sale price. If an eight-year-old house is sold today at Rs 1 lakh, your income will be presumed to be Rs 40,000 and you would pay only Rs 6,000 as tax.
The market price of all portfolios on March 31 1990 will be considered the base price on which the investor's portfolio block would be determined.
Earlier, the assessable income was on the difference between the declared sale price and the municipal rate eight years ago when the house was first purchased. In most cases, the municipal rate eight years ago is pathetically low at below 5 per cent of the current market price. For the same Rs 1 lakh deal, as per the earlier regime, a seller would be paying 20 per cent income tax on Rs 95,000 which would amount to a hefty Rs 19,000. Naturally, a large chunk of the price of the house is paid in cash, that is, black, at present.
Says Kapadia: "In one stroke, the concept of black money in property deals will become redundant. It's just not worth the trouble anymore. A 6 per cent tax rate on real estate transactions will easily be borne by the parties. What's more, the onus now is on the buyer to deduct the 6 per cent tax and pay the rest to the seller before the papers are finalised."
