Proposed Changes to House Property Taxation
The Direct Taxes Code (DTC) has introduced a significant departure from the existing taxation regime for house property income. Historically, taxes were levied on the potential income from a house property, not the actual income, unless the latter exceeded the former. The DTC, however, seeks to alter this approach.
New Taxation Basis
Under the proposed DTC regulations, the income from house property will be deemed as either:
- Actual Rent Receivable
- Presumptive Rent, whichever is greater.
Calculating Presumptive Rent
The Presumptive Rent is calculated as 6% of:
- Rateable Value fixed by municipal authorities, or
- If no rateable value is fixed, then 6% of the Cost of Acquiring the House.
Shift from Market Rent
Currently, Market Rent plays a crucial role in determining the potential rent. The Government appears to be moving away from this due to difficulties in accurately determining market rent, partly because of practices like disguising part of the rent as interest-free deposits.
Rationale Behind Using Rateable Value
Instead, the DTC relies on Rateable Value, which, while based on market rent, is not property-specific. However, this approach poses a risk:
- Municipal Authorities often fail to update the rateable value annually. Consequently, the value considered for income tax purposes might become outdated, even if it remains suitable for municipal tax levies.