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House Property Income

House Property Income [Section 22] : Introduction

Topics Covered in this Page

Owner

The person in whose name the House Property is registered is the Owner.

Annual Value

The charge to income tax under the head "Income from House Property" is based on the "Annual Value" of the property. Annual Value is to be determined taking into account the nature of usage of the House Property.

Rental Income of Real Estate Business Owner

Rental Income from Real Estate Business (ie the main object of the business is letting out of house properties), then it does not change the character of income into business income.

Income by way of rent earned by a real estate businessman is chargeable only as 'Income from House property'.

Rental Income of any other Business Entity

Rent is chargeable under the head "Profits and Gains of Business or Profession", when the letting out is dependent and linked with the main business and the letting out is not merely for the sake of earning rental income.

Examples: -

  1. Letting out of residential quarters to employees.

  2. Machineries, Godowns and factories let on commercial expediency or to ancillary unit.

  3. Paying Guest Establishment.

  4. Letting out of Swimming Pool of a Club.

  5. Making business premise available to Banks, Post Offices, Railway Booking Extension Counters, etc., in order to enable the assessee function more smoothly.

Ancillary Services

Ancillary services like electricity, lift facility, supply of water are provided, then the appropriate portion of such services are taxable under the head "Income from other sources" and the rent of the building is taxable as House Property Income.

Building Let Out with Plant & Machinery

If building and other amenities like furniture, machinery and plant are let out inseparably then in such cases, the building income is also chargeable under the head "Profits and Gains of Business or Profession" or "Income from Other Sources".

House Property Sub-Let by Tenant

The rent is chargeable under the head "Income from House Property" only in the hands of the owner. Where the house is sub-let by a tenant, the sub-lease rent is chargeable in his hands as "Income from Other Sources".

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Indian income tax return filing gif

Owner And Persons Deemed to be Owner [Section 27]

Owner of the House Property

The person in whose name the House Property is registered is the Owner.

However, in cases, where the substantial right in the property has been transferred, including possession and right to receive rent in his own name, then the Transferee will be the Owner, even though there is no registered document.

Deemed Owner of the House Property

The Income Tax Act deems certain persons as owners ("Deemed Owners") [Section 27]: -

Section

Deemed Owner

Nature of Property

27(i)

Individual

House Property transferred to spouse otherwise than for adequate consideration or not under an agreement to live apart.

27(i)

Individual

House Property transferred otherwise than for adequate consideration to minor child, not being a minor married daughter.

27(ii)

Holder of an Impartible Estate

All properties comprised in the Impartible estate.

27(iii)

Member of a Co-operative Society, Company or AOPs

House Property allotted/leased under a house-building scheme of such entities.

27(iiia)

Any Person

Allowed to take/retain possession of any building or part thereof in part performance of a contract of the nature referred to in Sec. 53A of the Transfer of Property Act, 1882

27(iiib)

Any Person

Acquiring any rights (excluding any rights by ways of lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in section 269UA(f).

Co-Owner of the House Property

Where two or more persons own a property jointly and the share of each co-owner is definite and ascertainable, then the share of each co-owner shall be included in their hands individually as House Property Income.

They need not be assessed to income tax as an AOP (Section 26).

Sub-let by Tenant

If the house property is sub-let by a tenant, the Lease rent is chargeable in the hands of owner as "House Property Income", and the sub-lease rent is chargeable in the hands of Tenant as "Other Sources Income"

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Income return filing in India

House Property Annual Value

Determination of Annual Value for calculating House Property Income: -

Determination of Annual Value involves two steps.

  1. Determination of "Gross Annual Value"

  2. Thereafter, "Taxes paid to Local Authority" are deducted to arrive at the "Annual Value"

Determination of Gross Annual Value: -

From assessment year 2002-2003, Gross Annual Value for calculating the House Property Income is to be determined as under: -

Whole Property or Part of the Property Let-Out throughout the Previous Year

Whole Property or Part of the Property was let and was vacant for whole or part of the Previous Year

Deemed-Let Out (i.e., More than one house self-occupied by the Owner)

Self-Occupied Residential Property or A Residential House Property not occupied by reasons of employment.

Sections 23(1)(a) and 23(1)(b)

Sections 23(1)(a) and 23(1)(c)

Sections 23(4) and 23(1)(a)

Sections 23(2)

Higher of the following

  • The sum for which the property might reasonably be expected to be let from year to year.

  • Actual Rent Received or Receivable by the owner after reducing the Unrealised Rent.

Actual Rent Received or Receivable by the owner after reducing

  • Rent relating to the period of vacancy.
  • Unrealised Rent

Note:

This provision is applicable only if the Actual Rent is lesser than Expected Rent due to vacancy in Property and not otherwise.

The sum for which the property might reasonably be expected to be let from year to year.

Nil

Note:

  1. Unrealised rent is eligible for deduction from the House Property Income, only if the following conditions laid down under rule 4 are satisfied: -

    1. The tenancy is bonafide.

    2. The defaulting tenant has vacated the property or reasonable steps have been taken to compel him to vacate the property.

    3. The defaulting tenant is not in occupation of any other property of the assessee.

    4. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceeding would be useless.

  2. The sum for which the property might reasonably be expected to be let from year to year is determined as under: -

    • Higher of the following: -

      • The Municipal Rent

      • The Fair Rent (i.e., Rent, which a similar property would be excepted to earn in the same or similar locality)

      Or

    • The Standard Rent (Rent fixed under Rent Control Act) if it is lower.

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