Friday, September 2, 2016

FAQs on Income from house property

Rental income in the hands of owner is charged to tax under the head “Income from house property”. Rental income of a person other than the owner cannot be charged to tax under the head “Income from house property”. Hence, rental income received by a tenant from sub-letting cannot be charged to tax under the head “Income from house property”. Such income is taxable under the head “Income from other sources” or profits and gains from business or profession, as the case may be.

Whether rental income could be charged to tax in the hands of a person who is not a registered owner of the property?

Rental income from property is charged to tax under the head “Income from house property in the hands of the owner of the property”. If a person receiving the rent is not the owner of the property, then rental income is not charged to tax under the head “Income from house property” (E.g. Rent received by tenant from sub-letting). In the following cases a person may not be the registered owner of the property, but he will be treated as the owner (i.e., deemed owner) of the property and rental income from property will be charged to tax in his hands:

(1) If an individual transfers his or her house property to his/her spouse (not being a transfer in connection with an agreement to live apart) or to his/her minor child (not being married daughter) without adequate consideration, then the transferor will be deemed as owner of the property.


(2) Holder of impartible estate is deemed as the owner of the property comprised in the estate

(3) A member of co-operative society, company or other association of persons to whom a building (or part of it) is allotted or leased under house building scheme of the society, company or association, as the case may be, is treated as deemed owner of the property.

(4) A person acquiring property by satisfying the conditions of section 53A of the Transfer of Property Act, will be treated as deemed owner (although he may not be the registered owner). Section 53A of said Act prescribes following conditions:

(a) There must be an agreement in writing.

(b) The purchase consideration is paid or the purchaser is willing to pay it.

(c) Purchaser has taken the possession of the property in pursuance of the agreement.

(5) In case of lease of a property for a period exceeding 12 years (whether originally fixed or provision for extension exists), lessee is deemed to be the owner of the property. However, any right by way of lease from month-to-month or for a period not exceeding one year is not covered by this provision.

Under which head is the rental income from a property held as stock-in-trade chargeable to tax?

Rental income from a property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under the head “Income from house property”.

It will not make any difference whether the property is held by the owner as stock-in-trade or otherwise. Thus, in respect of property held as stock-in-trade or in case of a person engaged in the business of letting out of property, rental income from property will be charged to tax under the head “Income from house property”.

However, if letting out of property is incidental to the main objective of business, then rental income will be charged to tax under the head “Profits and gains of business and profession” E.g: Rent collected by the employer from the employees in respect of residential quarters allotted to them.

Under which head is the rental income from a shop charged to tax?

Rental income from a property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under the head “Income from house property”. To tax the rental income under the head “Income from house property”, the rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax under the head “Income from house property”.

What is the meaning of the term ‘deemed owner’ and Whether rental income could be charged to tax in the hands of a person who is not a registered owner of the property?

Rental income from property is charged to tax under the head “Income from house property in the hands of the owner of the property”. If a person receiving the rent is not the owner of the property, then rental income is not charged to tax under the head “Income from house property” (E.g. Rent received by tenant from sub-letting). In the following cases a person may not be the registered owner of the property, but he will be treated as the owner (i.e., deemed owner) of the property and rental income from property will be charged to tax in his hands:

(1) If an individual transfers his or her house property to his/her spouse (not being a transfer in connection to an agreement to live apart) or to his/her minor child (not being married daughter) without adequate monetary consideration, then the transferor will be deemed as owner of the property.

(2) Holder of impartible estate is deemed as the owner of the property comprised in the estate

(3) A member of co-operative society, company or other association of persons to whom a building (or part of it) is allotted or leased under house building scheme of the society, company or association, is treated as deemed owner of the property.

(4) A person acquiring property by “power of attorney transaction” by satisfying the conditions of section 53A of the Transfer of Property Act, will be treated as deemed owner (although he may not be the registered owner). Section 53A of said Act prescribes following conditions:

(a) There must be an agreement in writing.

(b) The purchase consideration is paid or the purchaser is willing to pay it.

(c) Purchaser has taken the possession of the property in pursuance of the agreement.

(5) In case of lease of a property for a period exceeding 12 years (whether originally fixed or provision for extension exists), lessee is deemed to be the owner of the property. However, any right by way of lease from month-to-month or for a period not exceeding one year is not covered by this provision.

What is composite rent?

A person may let-out property along with other assets like building-cum-furniture, a well equipped cinema hall, a factory building with machinery. In such a case the owner will receive rent for letting out building as well as rent for other assets. This rent is called as ‘composite rent’.

Further, a person may let-out property and also provide additional services like supply of water, security service, etc. In such a case the owner will receive rent for building as well as charges for providing various services.

What is the tax treatment of composite rent when the composite rent pertains to letting of building along with assets?

In such a case, composite rent includes rent of building and rent towards other assets. This situation can be classified as follows:

(a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”. Nothing is charged to tax under the head “Income from house property” (as the case may be). This rule is applicable even if rent of building and rent of other assets is fixed separately.

(b) In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be). This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets.

What is the tax treatment of composite rent when the composite rent pertains to letting out of building along with charges for provision of services?


In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be).

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