Gave house on leave and licence how much tax am I liable to pay ?

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Hi,

Thank you for your question.

At the outset, it must be noted that the Municipal Tax and Income Tax imposed on income earned from property are two separate taxes which a person is required to pay to the State. However, the total municipal tax paid by you to the relevant Authority would be deducted at time of computing income tax on the property. The instant note is divided into two parts, Municipal Tax and Income Tax. Further, the note is not conclusive as certain information are required from your end which I have stated at the end. Nevertheless, the note would help you to understand the extent and nature of your tax liability and income which would be subjected to tax.

Municipal Tax - :

The Municipal Tax is determined on the basis of geographical area, in simple terms in geographical area of a particular municipality in which property is situated. As mentioned by you that your property is situated in Mumbai, therefore the Municipal tax on property would be attracted as per Mumbai Municipal Act of 1888 (MMC, Act). Property Taxes in Mumbai are determined as per the stipulations of Section 154 of the MMC Act. The letting rates would be computed as per Annexure H of the MMC Act for each part/locations to arrive at the Annual rent which is expected to be earned from the property.

It is pertinent to note that rateable value of any building or land is determined under Section 154 of the MMC Act after allowing 10% statutory deduction in lieu of all allowances for repairs or any other account whatever from the annual rent of such building or land for which such building or land might reasonably be expected to let from year to year. Therefore, the municipal income from rent would be computed as per following mechanism - :

“(Rent per month X 12 ) Less 10% Statutory Deductions”

In order to reach to the actual liability of the your Municipal Tax on your property you need provide location of your property so one can check from Annexure H and can inform you about actual liability of the Municipal Tax.

Income Tax - :

Income earned from renting a house is taxed as “Income from House Property” under section 22 of the Income-tax Act, 1963.

The entire rental income will not be considered for taxation purpose; only 70% will be considered as there is a 30% deduction allowed towards maintenance of the property. Further, the municipal tax paid on property would also be deducted for taxation purpose. The Act gives you deduction for taxable income from house property.

The following three conditions must be satisfied before the income of the property can be taxed as provisions of the Section 22 of the Income Tax Act, 1963 under the head “Income from House Property”:

1. The property must consist of buildings and lands appurtenant thereto;
2. The assessee must be the owner of such house property;
3. The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax.

It is also important to understand that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowed as a deduction. The amount of interest payable yearly should be calculated separately and claimed as a deduction every year. It is immaterial whether the interest has been actually paid or not paid during the year. [Circular No. 363, dated 24.06.1983]

The above mentioned facts highlight how income from house rent is computed for taxation purposes.

Please provide me following information so I can tell you what would your tax liability - :

a. Exact location of the property?
b. Who is the owner of the property? and is it owned jointly or solely by you ?
c. Any loan or amount borrowed for acquiring, constructing, repairing, etc of the property ?
d. Total income from other sources- till date ?

I would let you know your total tax liability once the above information are provided.

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