Short Notes on:
1. Exempted House Property Income
2. Deemed Ownership
3. Unrealised rent and its Treatment
4. Property owned by co-owners
5. Dispute about ownership
6. Deduction of Municipal tax
1. Properties exempted from tax under the head income from house property (Sec. 10)
i. Income from a farm house.
ii. Annual value of one palace in the occupation of an ex-ruler.
iii. Property income of a local authority.
iv. Property income of an approved scientific research association.
v. Property income of an educational institution and hospital.
vi. Property income of a registered trade union.
vii. Income from property held for charitable purposes.
viii. Property income of a political party.
ix. Income from property used for own business or profession.
x. Annual value of one self occupied property.
2. Deemed Ownership
Under Section 27 of the Income Tax Act the assessee in the following cases is deemed to be the owner of the house property, though not owner of the house property:-
i. If an individual transfers a house property to his or her spouse (except in connection with an agreement to live apart) or to a minor child (except a married daughter) without adequate consideration, he is deemed as the owner of the property for tax purposes.
ii. The holder of an Impartible Estate is deemed to be the owner of all the properties comprised in the estate.
iii. A member of a co-operative society, company or association of persons, to whom a property or a part thereof is allotted or leased under a house building scheme of the society, company or association, is deemed to be the owner of such property.
iv. A person who has acquired a right in a building by way of a lease for a term of not less than 12 years, is the deemed owner of the property. This provision does not cover any right by way of a lease renewable from month to month or for a period not exceeding one year.
3. Treatment of unrealized rent
For the purpose of determining the Annual value, the actual rent shall not include the rent which cannot be realized by the owner. However, the following conditions need to be satisfied for this:
i. The tenancy is bona fide;
ii. The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property.
iii. The defaulting tenant is not in occupation of any other property of the assessee;
iv. The assessee has taken all reasonable steps for the recovery of the unpaid rent or satisfied the assessing Officer that legal proceedings would be useless.
v. Unrealised rent of earlier years is not deductible.
Treatment of unrealized rent recovered
Where any rent cannot be realized, and subsequently if such amount is realized, such an amount will be deemed to be the income from house property of that year in which it is received. However, in the cases where unrealized rent is subsequently realized, it is not necessary that the assessee continues to be the owner of the property in the year of receipt also.
4. Sec. 26: Property owned by co-owners
If the share of co-owners if determinate, the income of such house property is calculated as one house and income is divided amongst co-owners. They shall be entitled to relief u/s 23(2) as if they are individually owners of such property.
5. Dispute about ownership:
• In case of dispute, receiver of rent liable to pay tax.
• If long time lease is taken, then the person who takes the lease is the owner
• In case of mortgage loan, mortgager is the owner.
• Property in the name of partnership, firm is the owner.
• A person whose property is vested in the custodian to evacuee property is not the owner.
• Subletting rent is treated as income from other sources.
6. Deduction of Municipal Taxes from Annual Value
From the annual value municipal taxes are to be deducted if the following conditions are fulfilled:
i. The property is let out during the whole or any part of the previous year.
ii. The Municipal taxes must be borne by the landlord. If the Municipal taxes or any part thereof are borne by the tenant, it will not be allowed.
iii. The Municipal taxes must be paid during the year. Where the municipal taxes become due but have not been actually paid, it will not be allowed.
Important Points:
1. It is the annual value of the property (not the actual rent received or receivable) considered for income from house property.
2. Rent from vacant land does not attract under the head.
3. House property used for OWN BUSINESS is not considered under this head.
4. He/she should be the OWNER of the property. (Need not be the owner of the land) e.g. Owner of apartment.
5. House property either rented to someone for commercial (including business) or for residential or for self occupation.
6. There must be a building. Building includes a large stadium with or without roof, rent from swimming pool, rent from godown, music hall, dance hall lecture hall, other public auditorium
7. Residential building normally have roof. Non residential building need not have roof.
8. Building area includes adjacent area like approach roads, garage, garden, cattle shed etc.
9. If property is transferred for inadequate consideration either to spouse or minor children the income from house property is calculated in the hands of the transferee (wife or minor children) but will be included in the hands of transferor under section 64(1).
10. If part payment is made after making a contract for sale for immovable property, and such house is occupied by the buyer it amounts to transfer even though the property is not registered (section 53A of the Transfer of property act).
11. If house property is rented to own employees where renting is not their business such income is under business, not under house property.
12. If house property is rented to non employees or activity which is not subservient and incidental to one’s own business then such income is from house property.
13. Rent from bank, post office, police station, central excise office, railway staff quarters which is for carrying on its business efficiently and smoothly, such income comes under income from business.
14. If house property is foreign country, annual property will be computed as if property is situated in India. Therefore municipal tax paid during the previous year in foreign country is also deductible.
15. Municipal taxes paid in the previous year and interest payable is deductible.
16. Interest payable outside India without deducting tax at source is not deductible.
17. Pre construction period means interest payable up to 31st March proceeding to the year of completion.
18. Pre-construction period interest is deductible only in the first five installments starting from 1st April of the year of completion.