Cases when Rental Income from Building is not treated as House Property Income

There are many instances where rental income from building is not treated as house property income which will be discussed in this article. The following are the main cases where rental income will not be considered as house property income: 

(i) Letting out of house property for smooth conduct of assessee's business/profession

 If a person lets out any house property for smooth conduct of his business/profession, the rental income from such house property shall not be treated as house property income rather it shall be treated as income under the head business/profession.

Examples:

1. Quarters let out to the employees of assessee's own business or profession.
2. Building let out to a Bank, Post Office, Police Station, Excise department or Police department etc.

Similarly, if a person carrying on any business/profession lets out his house property to a Bank, Post Office, Police Station, Excise Department or other department and the main purpose of letting is not to earn rental income but to facilitate its own business/Profession, the rental income shall not the taxable as house property income rather it will the treated as business income of the person.

(ii) Income from sub-letting of house property

In case a person occupies a building as tenant and lets out full or part of the hired building to another person, it is called sub-letting. The income from sub-letting, if any, is taxable under the head 'income from other source' and not under the head "house property". It is so because the person sub-letting the building is not the owner of that building. Such income is calculated as per section 56 after deducting all the expenses relating to sub-let portion.

Example: Mr. Raja had taken a shop on rent @ Rs 5000 per month. He sub let 50% of the area to Mr. Rao @ 3000 per month.

Income of Rs 3000 per month from subletting will be taxable under the head income from other sources.

(iii) Composite letting out of building along with furniture etc.

 If a person lets out building along with furniture, plant, machinery and other facilities etc., for a composite rent and such composite rent cannot be separated between (a) rent of building and (b) rent of other items/facilities then such composite rent shall be treated either as income under the head other sources or an income under the head business or profession, if such letting is the business of the assessee.

However, if such composite rent can be split up in parts and rent of building can be separately known, then such rent shall be treated as house property income and rent of other items/facilities shall be taxable as other source income/business or profession income.

(iv) Income from hotel business/paying guest accommodation

 If a person runs the hotel business or runs the business of providing paying guest accommodation, such rental income shall be taxable as income under the head Business/Profession.

However, if a person has a building in the nature of a hotel and he lets out such building as such to another person for carrying on hotel business, such rental income shall be taxable as 'income under the head house property'.