One of the common sources of income is rental income from house. The income from houses, buildings, godowns etc. is to be computed and assessed to tax under the head "Income from house property". It is to be noted that the income under this head is not based upon the actual income from the property but upon notional income or the annual value of that building.
House Property Income = Annual Value of Building - Deductions Specified u/s 24
As per Section 22 of the Income-tax Act, the annual value of property consisting of any building 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".
Following are the points to be noted while assessing income from house property:
1. Building or Land Appurtenant thereto
The scope of this head of income is limited to the income from buildings or lands appurtenant (attached or situated in the vicinity of building) to buildings only. Buildings include residential houses, bungalows, docks, warehouses, any block of bricks or stone work covered by a roof etc. Any rent from such land shall not be taxable as house property income but instead it shall be taxable under the head "Other Sources"
2. Annual Value
The meaning of word 'Annual value' is very significant because the annual value of the building or land appurtenant thereto is to be taxed and not the rent received. The annual value is to be determined according to the provisions of section 23 of Income-tax Act. These are discussed later in this chapter.
3. The Assessee should be the owner of the property
It is only the owner of the house property who can be taxed under this head of income. The tax under this section is in respect of the legal or beneficial owner and not the occupation or possession of house property'. Therefore, income from subletting, will be chargeable under the head Income from other sources and not under house property'. So only the owner, may be legal or deemed owner, is liable to tax under this head of income, unless the house property is used by him for the purposes of his own business or profession.
4. It is not used for purposes of assessee's business or profession
Where the assessee is carrying on business or profession in his own house, building or in a portion of it and the income of such business or profession, is taxable under the head 'Profits or gains of business or profession', the annual value in respect of property or portion of it is not taxable under this head of income. As the business is being carried on in the assessee's own premises, so no rent will be allowed as expenditure to the assessee in respect of these premises. But where the profits of such business or profession are not chargeable to tax, the annual value of the (owned) premises shall be computed and charged under the head house property.
5. Dispute about ownership
It is the owner who is liable to pay tax on the income of the house property and in case of a dispute about ownership the person who receives rent shall be liable to pay tax till the dispute about ownership is settled.
6. House Property situated in a foreign country
In case an assessee who is resident of India owns a house in a foreign country, income from such a house is taxable in India under the head house property. So income from house property in case not ordinary resident and a non resident shall be exempted but again it will be taxable in India if it is received or it is payable in India.
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