The Income From House Property means a house property consisting of any building or land appurtenant thereto. The assessee is the owner of this house property who is taxed under this head of house property. Other than the house owner, Rental income of any other person cannot be charged to tax. If the property is used for own business or profession, then it will not be chargeable to tax. Ownership and Deemed Ownership includes both freehold and leasehold rights. Other House Properties includes cinema buildings, residential houses, godowns, hotel building, workshop building, etc.
Income Under House Property is Taxable if the following conditions are satisfied:
- The House Property must consist of any buildings and lands appurtenant thereto.
- The taxpayer should not use the house property for the purpose of business or profession.
- The assessee should be the owner of such house property.
Deemed ownership of property is covered under Section 27 of the act. Income from house property is taxable in the hands of its owner. Deemed owner means the person who is not the legal owner of the house property but considered as the deemed owner of the property and is chargeable to tax on rental income earned on such house property. The person who is the holder of an impartible estate is also treated as deemed owner of the house property. These are following cases where someone else is considered to be the deemed owner of that property, and legal owner is not considered as the real owner of the property. Here the income earned on such property by deemed owner is charged to tax.
Transfer of House Property
- If an individual transfers the house property to his/her spouse not being a transfer in connection with an agreement to live apart, then he/her is Deemed to be the owner of that property.
- If a property is transferred to his/her minor child not being married daughter, then the transferor will be treated as the deemed owner of that property.
Holder of Impartible Estate
- The Holder of an impartible estate is considered as deemed to be the owner of that house property.
Member of Co-operative Estate
- If an Individual or a member of co-operative society, company/other association of persons to whom a building or its part is allotted or leased under a house building scheme of the society, association or company is treated as deemed owner of the property.
Person Holding Some Rights of Property under Section 53A of Transfer of Property Act
- The Person holding some rights of property under section 53A of transfer of property act is deemed as an owner of such property.
The following conditions under Section 53A are prescribed below
- There should be an agreement in writing.
- Purchaser has taken the possession of the property.
- The purchaser has paid the consideration or agreed to pay the same.
Person Holding Lease of the Property for not less than 12 years
- The person in a case of the lease of property for a period, not less than 12 years is Deemed to be the owner of that property.
- If a person who enjoys income from that property or holds the possession of a disputed property is Deemed to be an owner of that property.
Composite rent means the owner of the property receives rent from assets like Furniture, Plant, and Machinery. He also charges for different services provided in building like Lifts, Security, Power backup, etc. The amount which is recovered from all these is known as Composite rent.
Composite Rent of Building along with other Assets
- The Composite rent includes rent of building and rent towards other assets or facilities. This rent is to be bifurcated, and the sum attributable to the use of the property will be charged to tax under the head of Income from house property & charges for different services will be chargeable to tax under the head Profits and gains of business and profession/Income from other sources.
- If the two lettings are separable that is letting out one is acceptable to the other party without letting out of other then the income from letting out of the building is taxable under Income from House Property.
- Income letting out from other assets will be taxable as business income/Income from other sources.
- This is applicable if composite rent is received by the taxpayer from his tenant the two lettings.
Determination of Annual Value (Section 23):
Annual Value is determined under the head Income from House Property. It is a tax on income but, not a tax upon the inherent capacity of a building to yield income. The standard selected as a measure of the income to be taxed as annual income.
The determination of the annual value involves these following steps:
Step1: Find out reasonable expected rent of the property.
Step2: Find out the actual rent received or receivable after excluding unrealized rent but before deducting loss due to the vacancy.
Step3: Find out the amount which one is higher that is the amount computed in step1 or step2.
Step4: Find out loss because of the vacancy.
Step5: Here Gross Annual Value is obtained by subtracting step3 minus step4.
Income taxable under head Income From House Property will be computed after making the following deductions. They are
Standard Deductions: A Deduction of 30% from Net Annual Value is to be allowed as a standard deduction of Net Annual Value irrespective of expenditure incurred under section 24(a).
Deduction on Account of Interest: A Deduction available in any kind interest on borrowed capital from H.P income on an accrual basis for the purpose of construction, purchase, renewal, reconstruction or repair of the property. This Deduction is available under section 24(b).