taxability under income from house property

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david (Querist)
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19 May 2016 hi experts, I have given a house property on lease for a period of 3 years in return for a lease deposit of say 10laks. I would not be receiving any monthly rental. I would like to know how this income would be charged in income tax. should I consider notional rent and offer it to tax? let's say this is my second house property apart from the self occupied one. pls guide

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Amol S Joglekar

Amol S Joglekar (Expert)
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20 May 2016 the fair market value of rent in the area where your rented house is situated should be taken for the calculation purpose.

david

david (Querist)
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26 May 2016 Experts share your views

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Hey! Here’s how taxability works for your case under **Income from House Property**:

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### Scenario:

* You leased out a house for 3 years.
* No monthly rent is received.
* Instead, you received a **lease deposit (10 lakhs)**.
* This is your **second house property** (not self-occupied).

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### Tax Treatment:

1. **Lease Deposit (Capital Receipt)**

* The **lease deposit is a capital receipt**, not income.
* So, **the deposit itself is not taxable** as income in the year it is received.
* However, if you **forfeit or adjust this deposit later**, tax implications may arise then.

2. **Income from House Property - Notional Rent**

* Since the property is given on lease, **annual value is generally considered as ‘actual rent received or receivable’**.
* But here, **no rent is received regularly**.
* The question is: **Is notional rent to be charged?**

3. **Applicability of Notional Rent (Deemed Rent):**

* If the property is **actually let out or leased**, even if rent is not received, you must consider **rent receivable** as income.
* Since no monthly rent is agreed, rent receivable is considered as **nil** because lease deposit is a one-time payment, not rent.

4. **Case for Presumptive Rent on Lease Deposit**

* Sometimes, **lease deposit is considered to bear interest (say 6% p.a.)** and treated as deemed rent.
* Courts and some rulings consider a **reasonable interest on lease deposit as deemed rent**, since you get a lump sum instead of periodic rent.
* This is a debated area, but many treat 6% of the lease deposit as deemed rent under **Income from House Property**.

5. **Since this is your Second Property**

* You cannot claim exemption as self-occupied (which is allowed only on one property).
* So, this property will be treated as **‘Let out property’**.

6. **Deductions Available:**

* You can claim **standard deduction @ 30% on deemed rent**.
* Also, **interest on housing loan**, if any, can be claimed as deduction.

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### Summary:

| Particulars | Treatment |
| --------------------------------- | ----------------------------------------- |
| Lease Deposit | Capital receipt, no tax initially |
| Monthly Rent | Nil (no rent received) |
| Deemed Rent on Lease Deposit (6%) | May be considered taxable (60,000 p.a.) |
| Deductions | 30% standard deduction + interest on loan |

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### Practical Suggestion:

* Report **6% of lease deposit as income under Income from House Property**.
* Deduct 30% standard deduction.
* Show any interest paid on loan as deduction.

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If you want, I can help you draft the computation for your ITR based on this! Would you like that?

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