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What income will
be considered 'Income from House Property'?
The annual value of property, consisting of any buildings or lands
appurtenant thereto of which the assessee is the owner, other than such
portions of such property as he may occupy for the purposes of any
business or profession carried on by him, the profits of which are
chargeable to income tax, shall be chargeable to income tax under the
head "Income from House Property".
Is income from any property covered under this section?
No. Only the income from buildings or part of a building, held by the
assessee as the owner and the income from land appurtenant to the
buildings is covered under this section. Income from other property such
as open land is out of the purview of this section. Income from such
land will be taxed under the head, 'income from other sources.'
When the property is used by the owner for his business or profession,
the income of which business or profession is chargeable to income tax,
the income of that property is not charged in the hands of the owner.
Similarly, when a firm carries on business or profession in a building
owned by a partner, no income from such property is added to the income
of the partner, unless the firm pays the partner any rent for the same.
If the assessee is not the owner of the building but is a lessee and he
sublets the property, he would be taxed under the head 'Income from
other sources'.
What is included in the term 'buildings' for the purpose of this
section?
The term 'buildings' includes any building (whether occupied or
intended for self-occupation), office building, godown, storehouse,
warehouse, factory, halls, shops, stalls, platforms, cinema halls,
auditorium etc. Income arising out of the building or a part of the
building is covered under this section.
What is meant by the term "land appurtenant"?
Land appurtenant includes land adjoining to or forming a part of the
building. It would depend on the nature of the land, whether it is
appurtenant to the residential building, factory building, hotel
building, club house, theatre etc. and will include courtyards,
compound, garages, car parking spaces, cattle shed, stable, drying
grounds, playgrounds and gymkhana.
Is the income arising from vacant land covered under this section?
Any income, arising out of vacant land, is not covered under this
section even though it may be received as rent, ground rent or lease
rent. Such income would be assessable as income from other sources. Even
rent, arising out of open spaces, or quarry rent, is taxed as income
from other sources.
If a company is formed with the sole object of acquiring and letting
out immovable properties, what head would the rental income be taxable
under?
Even if a company is formed for the sole object of acquiring and
letting out immovable properties, the rental income would be taxable as
"Income from House property" and not as "business income."
If a building is used as a market and the owner/landlord provides
certain other services as required by the municipal license, what head
would the income fall under?
The income from letting out shops would be considered income from house
property.
When is the income from house property wholly exempt from tax?
In the following cases, income from house property is completely exempt
from any tax liability:
- Income from any farmhouse forming
part of agricultural income;
- Annual value of any one palace in
the occupation of an ex-ruler;
- Property Income of a local
authority;
- Property Income of an authority,
constituted for the purpose of dealing with and satisfying the need
for housing accommodation or for the purposes of planning
development or improvement of cities, towns and villages or for
both. (The Finance Act, 2002, w.e.f. 1.4.2003 shall delete this
provision.);
- Property income of any registered
trade union;
- Property income of a member of a
Scheduled Tribe;
- Property income of a statutory
corporation or an institution or association financed by the
Government for promoting the interests of the members either of the
Scheduled Castes or Scheduled tribes or both;
- Property income of a corporation,
established by the Central Govt. or any State Govt. for promoting
the interests of members of a minority group;
- Property income of a cooperative
society, formed for promoting the interests of the members either of
the Scheduled Castes or Scheduled tribes or both;
- Property Income, derived from the
letting of godowns or warehouses for storage, processing or
facilitating the marketing of commodities by an authority
constituted under any law for the marketing of commodities;
- Property income of an institution
for the development of Khadi and village Industries;'
- Self-occupied house property of an
assessee, which has not been rented throughout the previous year;
- Income form house property held for
any charitable purposes;
- Property Income of any political
party.
How is the annual value of the
property determined?
Under S 23 (1) of the Income tax Act, annual value of property shall be
deemed to be the following:
- The sum for which the property
might reasonably be expected to be let out from year to year;
- Where the property or any part of
the property is let and the actual rent received or receivable by
the owner in respect thereof is in excess of the sum referred to in
clause (a), the amount so received or receivable;
- Where the property or part of the
property is let and was vacant during the whole or any part of the
previous year and, owing to such vacancy, the actual rent received
or receivable by the owner in respect thereof is less than the sum
referred to clause (a) the amount so received or receivable.
The taxes levied by any local
authority in respect of the property shall be deducted while determining
the annual value of the property of that previous year in which such
taxes are actually paid by him. Further, the amount of actual rent
received or receivable by the owner shall not include the amount of
rent, which the owner cannot realize.
Sub-section 2: The annual value of a house or part of a house shall be
taken as nil if the property consists of such house or part of the house
and is occupied by the owner himself for the purpose of his own
residence or, if such house or part thereof cannot be occupied by him
because his employment, business or profession is carried on at any
other place and, he has to reside at that other place in a building that
does not belong to him.
Nevertheless, the above provision would not apply if the house or part
thereof is actually let during the whole or any part of the previous
year; or if any benefit therefrom is derived by the owner.
If the property consists of more than one house, the provisions of the
sub-section (2) shall apply in respect of only one of such houses, which
the assessee may at his option specify. The annual value of the
house(s), other than the house in which the assessee has exercised an
option, shall be determined under sub-section (1) as if the house (s)
had been let out
What are the deductions permitted to be made from Income from house
property"?
S 24 lays down that 'income chargeable under the head 'Income from
house property' shall be computed after making the following deductions:
- A sum equal to 30% of the annual
value;
- If the property has been acquired,
constructed, repaired, renewed or reconstructed with borrowed
capital, the amount of any interest payable on such capital. Where
such property has been acquired, constructed, repaired, renewed or
reconstructed with borrowed capital, on or after 1st April 2003, the
amount of deduction under this clause shall not exceed Rs 1, 50,000.
The amount of deduction shall not
exceed Rs 30,000 where the property consists of a house or part of a
house, which the owner occupies for his own residence or which cannot be
occupied by him because his employment, business or profession is
carried on at any other place and he has to reside at that other place
in a building which is not his own.
Can rental income be treated as business income?
The main criteria for deciding whether the rent is assessable as income
from property or as business income depends upon the assets are
exploited commercially or whether the same are let out for enjoying the
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