Income tax loopholes
I think it’s only appropriate that i publish something on taxes just two nights before the Union Budget 
The Income tax in India wiki has the following.
Interest on Housing Loans
For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999.
For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act.
If the house is not occupied due to employment, the house will be considered self occupied.
worst practice happening:
Our ‘kepmaari’ makkals build a house for 35 lakhs, for which they would be paying an EMI of about 33000 per month. Out of this, about Rs.30,000 would be for the interest component.
But if only the assessee declares the house as self-occupied, his maximum deductible amount will be Rs.1,50,000.
So our killadi kepmaaris declare the newly bought house as ‘let out’ for a princely sum of Rs. 3000 per month.
The result?His entire 3,60,000(30,000 x12) is fully deductible.
On the other hand, he is going to add Rs. 36000 as annual value of such let out house property.
Income From House property
Income from House property is computed by taking what is called Annual Value. The annual value (in the case of a let out property or a deemed let out property) may be maximum of the following:
* Rent received
* Municipal Valuation
* Market ValueAnnual value in case of a self occupied house is to be taken as NIL. From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct :
* 30% of Net value as repair cost (This is mandatory deduction)
* Interest paid or payable on a housing loan against this houseIn the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if loan is taken on or after 1st April 1999) and Rs.30,000 (if the loan is taken before 1st April 1999)
The balance is added to taxable income.
I dont think one needs to show any proof for declaring such low amounts as rental value.
What’s more, he will show another fake receipt which stipulates he is giving out monthly rent for his accommodation of , say, Rs 6000 and claim HRA as well.
Idhu epdi iukku?
If this can happen with salaried professionals, imagine tax collection among business men.
February 26th, 2008 at 9:54 pm
Are you one of the “kepmaari” makkals..
February 26th, 2008 at 11:11 pm
dei gopi,
Enga team laye naan dhaan highest tax payer, getting the same exact salary as everyone
That should give you an idea
And i don’t even claim i have been 100% absolute honesty personified guy in the past on tax issues…ellarum panraanga naanum pannaren nu idhu madhiri vera sila velaigal pannirukken..
Aana indha alavuku ella tax provisions um use panni chartered accountants ke thanni kaatraanga makkal..
Having said that our tax provisions motivates you to be like that.
How long will it take for the law to be amended to say, the exemption limit will be increased from 1,50,000 by only the actual rent received?
seri salaried class indha alavuku dhaan panna mudiyum nu poga vendiyadhu dhaan!
Another thinking i have in this point is, this is rampant among otherwise very decent folks. So, either they are disillusioned with the system
or
Tax evasion in india does not start from the high ncome earning business men or politicans. Almost everyone will cheat if given an option.
Namba DNA laye ‘greater common good’ factor ellam illai nu ninaikiren.
February 26th, 2008 at 11:34 pm
knowledge shoudla lways be put to you
so i suggest you put this knowledge of yours to use soon
February 27th, 2008 at 4:45 pm
IT Dept should audit if they want to net the tax. If they do not do their job, there will always be evaders! Also, I am not trying to justify the greed of tax evaders.
March 2nd, 2008 at 10:17 pm
monu,
nandri for this advice
XYZ,
maybe. that adutiting each and every tax return is well nigh impossible me thinks.
Gopi,
Its all relative to the standards you keep da. What’s your devil’s cap may still be better than sombody’s divine cap :).
And that standard is evolving day by day for each invididual in each aspect of life.
March 14th, 2008 at 9:17 am
Hey! you need to get your head examined!! I’m referring to the so called ingenious scheme of your . If this is true tax consultants would be making n(more) bonanzas.
Pls check your facts.
What you are calculating is the ‘Income chargagble under ‘Income from house property’ (Section 24 of the IT act.
Annual value refers to the Rental value or rent recieved less by municipal taxes paid. In case of self occupied it is NIL (Ref Sec 23 of IT Act)
http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2007ITAct/section23.htm
The income chargeable to you from House propertyis the Annual value arrived at as above, less 30% (maintenance charges) and IS FURTHER REDUCED by the amount of Housing Loan interest. Hence your Income from House Property could be NEGATIVE if you had paid housing loan interest.
This negative amount is ‘added’ to your total income (which includes your Salary income) thus essentially reducing your total income by the amount of Housing loan interest paid by you (This is the Sec 24). HOWEVER Sec 24 limits the amount of deduction to Rs.1,50,000/- (Rs. 30,000 if property was build before 1st April 1999).
Sec 24: http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2007ITAct/section24.htm
I am NOT a Tax consultant , but have been paying (and researching) the IT Act for years and years now.
Moreover, When you are claiming house rent loan deduction, you are specifically mentioning that you are not claiming HRA deductions. So anyone doing both is potentially liable for criminal prosecution!
For details (from the horses mouth) go to http://law.incometaxindia.gov.in/TaxmannDit/Displaypage/dpage1.aspx?md=2&typ=cn&yr=2007&chp=37
If what you say is true - pls let me know who does this - I will reward you (and get benefitted myself)
March 14th, 2008 at 11:53 am
Chennaivaasi,
Welcome to my blog.
Thanks for these URLs.
There are two cases:
a)Sec. 24 deductions when the property is self occupied, and
b) when the property is let out.
In pure lay man’s terms, the sec 24 deduction is subject to a maximum cap of Rs. 1,50,000 when the property is declared as self occupied.
But in case of property let out, the entire interest component ,even if it exceeds Rs.1,50,000 is deductible
(unga style la sollanumna negative income ‘added’ to the salary). the only condition is income from such let out property will be charged to income tax. which shud be okay if i can claim 3,00,000 and add a nominal rent of 3,000 per month.
http://sify.com/finance/fullstory.php?id=14196378
>>I am NOT a Tax consultant….
Please ask your Tax consultant about this:-)
In those URLs.
i was not able to find a provision which explicitly states one cannot claim HRA if he is claiming deductions under sec. 24
What if i have built a house in coimbatore, and now am living in a rented accomodation in chennai? You mean to say i cannot claim HRA??
http://www.rediff.com/getahead/2005/apr/25home.htm
Thanks for your suggestion to examine my head. Double-checking is always good, be it head or facts
Oh yeah, thanks for the reward offer too
Sorry i am not in the business of proving myself to all and sundry.
June 13th, 2008 at 12:32 pm
and the best part is income tax guys cant say a thing on this practice because you are actually declaring income. They cant say you didnt earn this income