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1. Deemed Ownership [Section 27]

As per Section 27 there are some persons who are not the legal owners of a property but still deemed to be the owners. Following Persons are Deemed Owners of House Property:

  • An individual who transfers House Property to his/her Spouse : If an individual transfers any House Property to his or her spouse otherwise than for adequate consideration and it is not related to an agreement to live apart, the transferor in that case is deemed to be the owner of the House Property transferred.
  • An Individual who transfers House Property to his/her Minor Child : If an individual transfers any House Property to his/her minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the House Property transferred. However where transfer is to a minor married daughter then transferor shall not be treated as the deemed owner of the House Property.
  • Holder of an Impartible Estate : The term Impartible Estate means the Property which is not legally divisible. The holder of Impartible estate will be treated as the owner.
  • Member of a Co-Operative Society : A member of a co-operative society, AOP, to whom a building or part thereof is allotted or leased under a House Property scheme of such society/AOP shall be deemed to be the owner of that building or part thereof although the co-operative society/AOP is legal owner of that building.
  • Person in Possession of Property : A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of the Property Act shall be deemed owner of that Building or Part thereof. This would cover cases where:
    • Possession of property has been handed over to the buyer.
    • Sales consideration has been paid or promised to be paid to the seller by the buyer.
    • Sale deed has not been executed in favour of the buyer.
    • The buyer would be deemed to be the owner of the property although it is not registered in his own name.
  • Person having right in a Property for a period not less than 12 years : A person who acquires any right in or with respect to any building by way of lease for a period not less than 12 years shall be deemed to be the owner of that building or part thereof.

2. Special provision for arrears of rent and unrealised rent received subsequently [Section 25A]

The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant, as the case may be, by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year.

A Deduction of @ 30% of arrears of rent or unrealised rent, realised subsequently by the assessee.

3. Composite Rent

When other assets (like furniture) or charges for different services provided in the building (e.g. charges for security, lift, air-conditioning etc.), the total amount so received is called ‘composite rent‘.
The owner of the building gets the above mentioned income along with the rent of the building, rent or hire of.

Tax Treatment of Composite Rent:

When composite rent consists of rent for building and rent hire for other assets (like furniture, television etc.) and the two rents are inseparable i.e. the other party will not accept the letting of one without the other, then such income is taxable as business income or ‘Income from other sources’, as the case may be.

When composite rent consists of rent for building and rent hire for other assets (like furniture, television etc.) and the two rents are separable i.e. letting out of one is acceptable to the other party without letting out of the other, then the portion of rent attributable to the building should be assessed as ‘income from house property’ and the other portion attributable to services/amenities should be assessed as ‘income from other sources’ or ‘Profits and gains of business or profession’, as the case may be. 

Meaning and Chargeability

A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. All types of properties are taxed under the head ‘Income from house property’ in the ITR.

1. Self-Occupied House Property

A self-occupied house property is used for one’s own residential purposes. This house may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as self-occupied for the purpose of Income Tax.

If more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

2. Let Out House Property

A house property which is rented for the whole or a part of the year is considered a let out house property for income tax purposes

Conditions for chargeability of income under house property [Section 22]

  1. Property should consist of any building or land appurtenant thereto.
    • Building Includes – Residential Buildings, factory Buildings, offices, shops, go-downs and other commercial premises.
    • Land appurtenant Means land connected with the building e.g. garden, garage etc.
  2. Assessee must be the owner of the property
    • Owner is the person entitled to receive income from house property.
    • Ownership includes deemed Ownership.
    • He must be the owner of the house property during the previous year.
  3. Use of property
    • The Property may be used for any purpose but should not be used for Business/ Profession carried by the owner.
    • The income earned by an assessee engaged in the business of letting out of property on rent would be taxable as business income.
  4. Property held as stock in trade
    • Annual Value of house property which is held as Stock-in-trade of business will be charged under the head “Income from house property”