The Hindu Business Line : House as clinic

No, it is not. Section 22 of the Income-tax Act leaves out house properties used by a person for his business or profession. Therefore the annual value of this house will not be taxed. The expenses related to the house such as municipal tax, interest, repairs etc would not be allowed either, in tenor with the exemption. No notional rent would be allowed in computing your professional income in respect of this house from which you are functioning. This treatment extends to all buildings occupied for one's business or profession.

Income from guesthouse

I have converted my bungalow into a guesthouse. The rooms are fully furnished. I charge Rs 1,000 per day, which includes breakfast, lunch and dinner. Is this my income from house property or income from business?

Dinesh Padukone, Mangalore

Admittedly, you are in the business of running a hotel. And when one's house is used for one's business or profession, the income is not taxable under income from house property. The tax liability would be under the more agreeable income from business and profession. You can claim depreciation on building, furniture and electrical fittings installed in the guesthouse. For that matter, you are entitled to all deductions available when calculating income from business. If you were to be taxed under income from house property you can avail a mere 30 per cent standard deduction in addition to interest you may have incurred. Small wonder, people squirm at the prospect of being assessed under income from house property and rejoice at joining the business bandwagon.

House for the Mrs

I intend to gift my wife one of my two self-occupied houses. I am told this is unadvisable from the taxation point of view and that I should, instead, give her cash to buy a house. Why?

Anurag Mittal, Delhi

Under Section 27, when one gifts property to the spouse, he or she is deemed the owner notwithstanding the transfer of property through gift. Therefore, only one of the two houses would be eligible for the `nil annual value' status because, according to the rule, one self-occupied own house is tax-free.

But if you give your wife cash to buy a house, she would be the owner. By this stratagem both houses would be tax-free.

If you are cash-strapped, you may want to sell one of the two houses and the capital gains from this would be taxed unless you use the money to buy another house in your name. But your intention is to have your wife own the house in her name.

On the other hand, you can invest in capital gain bonds, which entail a lock-in period of three years. Thereafter you can gift your wife the cash.

The author is a Delhi-based Chartered Accountant.

(Send in your questions on real estate to TheRealMcCoy@rediffmail.com)

S. Murlidharan

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