What are the cases under which a person who is not Registered Owner (Deemed Owner) of House Property has to pay tax on Rental Income of such Property.

What are the cases under which a person who is not Registered Owner of Property has to pay tax on Rental Income of such 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.

What types of Incomes are covered under the head Income from House Property

WHAT TYPE OF INCOMES IS COVERED:-

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

RENTAL INCOME FROM SUB- LETTING:-

  • 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.

RENTAL INCOME FROM SHOP:-

  • 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”.

EXPENSES TO BE DEDUCTED WHILE CALCULATING INCOME FROM HOUSE PROPERTY:-

  • While computing income chargeable to tax under the head "Income from house property" in the case of a let-out property, only following items can be claimed as deductions from gross annual value. In other words, deduction cannot be claimed for any expenditure incurred by the taxpayer other than following:
    • Deduction on account of municipal taxes paid by the taxpayer during the year (*).
    • Deduction under section 24(a) @ 30% of Net Annual Value.
    • Deduction under section 24(b)​​

(*) Only municipal taxes paid by the owner during the year can be deduced, hence, municipal taxes due but not paid during the year cannot be deducted or taxes borne by the tenant cannot be deducted.

DEDUCTION OF INTEREST PAID ON LOANS TAKEN FROM FRIENDS:-

  •  If the loan is taken for purchase, construction, repair, renewal or reconstruction of the house, interest on such loan can be claimed as deduction.
  • If the loan is taken for personal or other purposes then the interest on such loan cannot be claimed as deduction.

DEDUCTION OF INTEREST PAID ON HOUSING LOANS:-

  • While computing income chargeable to tax under the head "Income from house property" in case of a let-out property, the taxpayer can claim deduction under section 24(b)
  • In case of a let-out property, there is no limit on the quantum of interest which can be claimed as deduction under section 24(b). However, in case of a self-occupied property, limit is Rs. 2,00,000 or Rs. 30,000, as the case may be

INCOME FROM SELF OCCUPIED PROPERTY:-