Income from House Property

Income From House Property

As per sec. 22, the annual value of property consisting of any building or land appurtenant thereto of which assessee is the owner, other than such portion of such property as he may occupy for the purposes of any business or profession carried on by him shall be chargeable to income tax under the head 'Income from house property'.

Chargeability [Sec. 22]

Annual value of a property shall be taxable under the head 'Income from house property' subject to following conditions:

There must be a property consisting of any building or land appurtenant thereto.
Assessee is the owner (including deemed owner) of that property.
Such property is not used for the purpose of business or profession (which is charged to tax) carried on by the owner.

Building or land appurtenant thereto

The term 'house property' means:

- any land surrounded by wall having roof or not; and

- any land appurtenant to a building.

Notes

Building includes

- an enclosure of bricks, stone work or even mud walls

- residential as well as commercial houses.

Vacant land is not a house property. Hence, income from letting of vacant land is not taxable under this head but taxed as business income or as income from other sources.
An incomplete, a ruined or demolished house cannot be termed as house property.

Owner
Owner includes legal owner, beneficial owner and deemed owner.

Fictional owner or Deemed owner
U/s 27, in the following cases, a person shall be treated as deemed owner of the property and liable to tax (in such case legal owner or beneficial owner shall not be further liable to tax):

Transfer to spouse or minor child [Sec. 27(i)]	When an individual transfers a house property to - a. his or her spouse (not being a transfer in connection with an agreement to live apart); or b. a minor child (not being a married daughter) - without adequate consideration, then transferor shall be treated as deemed owner of such property. Note : In case of transfer to spouse, marriage should subsist on both the days i.e., on the day of transfer as well as on the day when income arises.
The holder of an impartible estate [Sec. 27(ii)]
Property held by a member of a company, co-operative society or any other association of persons [Sec. 27(iii)]	Property held by a member of a company, co-operative society or other association of persons to whom a building or a part thereof is allotted or leased under House Building Scheme of the company or association, is treated as deemed owner of that building or a part thereof.
A person who acquired a property u/s 53A of the Transfer of Property Act [Sec. 27(iiia)]	A person who is allowed to take or retain possession of any building (or part thereof) in part performance of a contract u/s 53A of the Transfer of Property Act, 1882, is deemed as the owner of that building (or part thereof).
Lessee of a building u/s 269UA(f) [Sec. 27(iiib)]	A person who acquires any right u/s 269UA(f) in or with respect to any building or part thereof, by way of lease agreement for a period not less than 12 years is deemed as the owner of that building (or part thereof). Notes a. Lease period should not be less than 12 years [as per sec. 269UA(f)] including extension period. b. Above provision does not include any right by way of lease from month to month or for a period not exceeding 1 year.

Property is used for the purpose of business or profession carried on by the assessee
When a person carries on business or profession in his own house property, annual value thereof is not taxable u/s 22 provided income of such business is chargeable to tax .

Incidences thereof

Letting out to employees : If an assessee lets out the property to his employee, where such letting out supports smooth flow of his business, then such letting out shall be deemed to be incidental to business and such rent shall be chargeable under the head "Profits & gains of business or profession".
Letting out to Government Agencies : Where an assessee let out his property to any Government agency for locating branch of a nationalized bank, police station, post office, excise office, railway staff quarters, etc. for the purpose of running the business of assessee more efficiently, such letting out shall be deemed to be incidental to business and such rent shall be chargeable under the head "Profits & gains of business or profession".
Letting out to ancillary units : Where an assessee lets out its property to ancillary units, which manufactures components required by the assessee. Income from such letting out shall be taxable under the head "Profits & gains of business or profession".
Partner's property used by the firm : The business carried on by the firm should be regarded as carried on by all the partners. Thus, annual letting value of a property belonging to the assessee which is in occupation of the firm in which assessee is the partner, is not includible in income of the assessee-partner u/s 22

Letting out property for promotion of own business vs Business of letting out the property

Assessee lets out the property for the promotion of its own business or profession	vs	Assessee is engaged in the business of letting out the property
If an assessee carries on business or profession in his own house property or lets out the property for smooth running of his business or profession, income from such property is taxable under the head "Profits & gains of business or profession".		If an assessee is running a business with main object of buying & developing house properties either to let out or to sell such properties, then annual value of such house properties shall be taxable under the head 'Income from house property'. However, profit on sale of house shall be taxable under the head Profits & gains of business or profession

Exempted properties
Income from the following house properties are exempted from tax:

Any one palace or part thereof of an ex-ruler, provided the same is not let out [Sec. 10(19A)].
House property of a local authority [Sec. 10(20)].
House property of an approved scientific research association [Sec. 10(21)].
House property of an educational institution [Sec. 10(23C)].
House property of a hospital [Sec. 10(23C)].
House property of a person being resident of Ladakh [Sec. 10(26A)]
House property of a political party [Sec. 13A]
House property of a trade union [Sec. 10(24)]
A farm house [Sec. 10(1)]
House property held for charitable purpose [Sec. 11]
House property used for own business or profession [Sec. 22].

Computation of Income

The chapter is divided into the following categories for the purpose of computation:

Some special cases

Composite rent

Composite Rent = Rent for building + Rent for assets / Charges for various services

Tax treatment of composite rent is as follows :

Rent including charges for amenities or services like garden facility, food, lighting, etc. or other separable assets (like machinery, plant, furniture):
If the owner of house property gets composite rent for both property as well as for services rendered or other separable asset, such composite rent shall be treated as under:

Particulars

Taxable under the head

Sum received for the use of building.

'Income from house property'.

Sum received for other amenities or other separable assets.

'Profits & gains of business or profession'; or

'Income from other sources'

However, if segregation of composite rent is not possible, then the whole amount will be taxed either under the head 'Profits & gains of business or profession' or 'Income from other sources'.

Letting of building with other inseparable assets (like machinery, plant, furniture)
If letting of only building is not possible or not acceptable to the other party, then sum received as rent from the properties is chargeable as business income or income from other sources even if the composite rent is segregable. E.g., letting out of hotel rooms, auditoriums, etc.

Co-ownership [Sec. 26 ]
If two or more persons own a house property jointly, then they are known as co-owners. If individual share of each co-owner is definite and ascertainable then the share of each such person shall be taxable as his income from house property.

Tax treatment

Share of each co-owner in the income from the property as computed in accordance with sec. 22 to 25 shall be included in his total income.
Where the house property is owned by co-owners and is occupied by each of the co-owner then all of them can claim benefit u/s 23(2)(a) and interest on loan shall be allowed to all the co-owners to the extent of Rs.30000/Rs.150000 as the case may be.