Saif Ali Khan appears, has won a major reprieve with the Income Tax Appellate Tribunal (ITAT) ruling in his favour in a case relating to a flat he owns. Though the flat, in Bandra in Mumbai, was vacant for the year, the income tax department said that the actor needed to pay tax on the Notional income he had earned from it. The official estimated the cost of the apartment, assumed the rental value was 7% of this, deducted 30% of this as standard deduction and arrived at a rental value of Rs 56.8 lakh as “income from house property” for the year. As compared to this, the actor argued that the notional rent was Rs 11.8 lakh and the ITAT has accepted this. Khan also argued that the house needed to be renovated—to split the flat into three as it was too large to be let out—and so he should be exempted from paying tax on a notional income, The Times of India reported; presumably, the ITAT took this into consideration when it accepted the lower notional income proposed by Khan.
The larger question, though, is why anyone has to pay taxes on notional incomes on house property. The tax is a throwback to the days when, since the government didn’t want houses/flats to be bought and then not rented out, it levied the tax to make keeping the house empty more expensive. There could be various reasons for keeping a house vacant, ranging from not getting permissions on time for renovating it to, say, not wanting to rent it since rentals were expected to pick up soon, or it could just be that the owner doesn’t want to let it out as getting tenants to vacate isn’t always easy. In any case, since the owner has paid the market value for the flat, surely the decision on whether to let out a house or to keep it vacant should be that of the owner—indeed, no reason needs to be given for the decision—and it should not be considered a crime for which a tax/fine has to be paid?
Also, this taxation principle discriminates against investments held in the form of real estate. If, say, the same investment had been made in gold, the government would get no annual taxes on it; if it were made in equity mutual funds, the taxman would have got taxes only after the asset was sold and at just a 10% rate. Why should tax policy dictate where an investment is going to be made? This antiquated rule has no place on the tax statute, and needs to be removed at the earliest.