Income under the head house property: Chargeability


Income under the head house property: Chargeability

In the today’s world people prefer to invest more and more sum of money in property. It is generally presumed that investing in property is safe and gives high return. In this article we will discuss the chargeability of income under the head House Property.

To compute the income under the head “Income from house property” what can be done? First of all we need to determine annual value of the property. The concept of annual value and the method of determination are laid down in section 23 of the Income Tax Act, 1961.

The annual value of any property comprising of buildings or lands appurtenant thereto of which the assessee is the owner is chargeable to tax under the head “Income from house property”.

It is clearly mentioned in the Act that the following shall be chargeable under the head “Profits and gains of business or profession” –

  • Portions of property occupied by the assessee for the purpose of any business or profession carried on by
  • Properties of an assessee engaged in the business of letting out of

To be chargeable to tax under the head capital gain property should consist of any building or land appurtenant thereto. Buildings include not only residential buildings, but also factory buildings, offices, shops, godowns and other commercial premises. Land appurtenant means land connected with the building like garden, garage etc. Building does not include vacant land. The income from vacant land is taxable under the head Income from other sources” or “Profits and gains from business or profession”.

The amount is chargeable to tax only if assessee is owner of the property. This criterion is not applicable if unrealized rent is recovered. The following points are available in respect of owner:

  • Owner is the person who is entitled to receive income from the property in his own
  • The requirement of registration of the sale deed is not warranted.
  • The person who owns the building need not also be the owner of the land upon which it
  • Ownership includes both free-hold and lease-hold
  • Ownership includes deemed ownership
  • The assessee must be the owner of the house property during the previous year. It is immaterial whether he is the owner in the assessment year.
  • If the title of the ownership of the property is under dispute in a court of law, the decision as to who will be the owner chargeable to income-tax under section 22 will be of the Income-tax Department till the court gives its decision to the suit filed in respect of such

The income shall not be chargeable to house property if property is used by the owner for the purpose of any business or profession carried on by him. The income earned by an assessee engaged in the business of letting out of properties on rent would also be taxable as business income and not as income from house property.

Carefully Note that, annual value of house property will be charged under the head “Income from house property”, where the property is held by the assessee as stock-in-trade of a business also.

The best part is that the annual value of property being held as stock in trade would be treated as NIL for a period of one year from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority, if such property is not let-out during such period.

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