FAQs
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​Is rental income from sub-letting chargeable to tax under the head “Income from house property”?

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.​

Whether rental income could be charged to tax in the hands of a person who is not a registered owner of the 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.​

​Under which head is the rental income from a shop charged to tax?

​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”. ​

​What is the tax treatment of composite rent when the composite rent pertains to letting of building along with other assets?
Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:-
(a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”.. 
(b) In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets. 

What is the tax treatment of composite rent when the composite rent pertains to letting out of building along with charges for provision of services?

In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be).​

​What is the tax treatment of composite rent when the composite rent pertains to letting of building along with assets?

Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:-

(a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head "Profits and gains of business and profession" or "Income from other sources", as the case may be. Nothing is charged to tax under the head "Income from house property"..

(b) In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head "Income from house property" and rent of other assets will be charged to tax under the head "Profits and gains of business and profession" or "Income from other sources", as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets.

​How to compute income from a property which is let out throughout the year?

​​​Income chargeable to tax under the head "Income from house property" in the case of a let-out property is computed in the following manner:

 

Particulars Amount
Gross annual valueXXXX
Less:- Municipal taxes paid during the year XXXX
Net Annual Value (NAV)XXXX
Less:- Deduction under section 24  

➣Deduction under section 24(a)) at 30% of NAV

➣Deduction under section 24(b​)) on account of interest on borrowed capital

(XXXX)

 

(XXXX)

Income from house propertyXXXX​

 

​How to compute gross annual value of a property which is let-out throughout the year?

Gross annual value of a property which is let-out throughout the year is determined in the following manner :

Step 1: Compute reasonable expected rent of the property (for details refer to FAQ on computation of reasonable expected rent).

Step 2: Compute actual rent of the property (for details refer to FAQ on computation of actual rent).

Step 3: Compute gross annual value (Gross annual value will be higher of amount computed at step 1 or step 2).​

How to compute reasonable expected rent while computing gross annual value of a property which is let-out throughout the year. ? ​

Reasonable expected rent will be higher of the following:

  • Municipal value of the property (Note 1); or
  • Fair rent of the property (Note 2).

    If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent (Note 3).

    Note 1: Meaning of Municipal Value

    For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property.

    Note 2: Meaning of Fair Rent

    It is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.

    Note 3: Meaning of Standard Rent

    It is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.

How to compute actual rent while computing gross annual value of a property which is let-out throughout the year?

Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent if conditions specified in this regard are satisfied.

(*) Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:

➣  The tenancy is bona fide.

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

➣  The defaulting tenant is not in occupation of any other property of the taxpayer.

➣  The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.


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