Essential conditions for taxing income under this head
Income from house property is taxable in the hands of its legal owner in whose name the property stands. "Owner" for this purpose means a person who can exercise the rights of the owner not on behalf of the owner but in his own right.
A person entitled to receive income from a property in his own right is to be treated as its owner, even if no registered document is executed in his name.
The following three conditions must be satisfied before the income of the property can be taxed under the head “Income from House Property”:
- The property must consist of buildings and lands appurtenant thereto;
- The assessee must be the owner of such house property;
- The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax.
Ownership includes both free-hold and lease-hold rights and also includes deemed ownership.
Note :Please note that if you want to claim benefit of House loan Interest and House loan repayment (80C) in that case also you must be owner of the house ,if you have no ownership and just a co borrower then you can not avail benefit /deduction for Interest on house loan and repayment of House loan.
Meaning of the word owner
For the purpose of charging income under this head, the word owner will cover a person who can exercise the rights of the owner. However, a person exercising rights of owner on behalf of any other person will not be treated as an owner for the purpose of this head. Following points should be noted in this regard:
- A person purchasing a property who is entitled to enjoy the rights of owner will be treated as an owner for the purpose of this head even if the registered document has not been executed in his favour.
- In respect of a building constructed on leasehold land, the owner of the building will be treated as the owner for the purpose of this head, even though he is not the owner of the land on which building is standing. The position will remain same even if the building is to be transferred to the lessor on completion of the lease.
Rental income from property is charged to tax under the head “Income from house property in the hands of the owner of the property”.
If a person receiving the rent is not the owner of the property, then rental income is not charged to tax under the head “Income from house property” (E.g. Rent received by tenant from sub-letting).
In the following cases a person may not be the registered owner of the property, but he will be treated as the owner (i.e., deemed owner) of the property and rental income from property will be charged to tax in his hands
Deemed Ownership [Sec. 27]
As per Sec. 27, though the following persons are not the legal owners of the property, yet deemed to be the owners for the purpose of Sec. 22 to 26:
1. Transfer to a spouse/child [Sec. 27(i)]: If an individual transfers any house property to his or her spouse/ minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the house property so transferred. This would, however, not cover cases where property is transferred to a spouse (or minor married daughter) in connection with an agreement to live apart.
Note 1:- Where the individual transfers cash to his/her spouse or minor child and the transferee acquires a house property out of such cash, the transferor shall not be treated as deemed owner of the house property. Such transaction will, however, attract clubbing provisions.
Note-2: The above rule is not applicable in case of Son/daughter in law .So if you have more than one self occupied house and wants to out from deemed let out provisions the you may transfer property in the name of your daughter in law then you will not be treated as deemed owner of the house and if house is self occupied then it will be counted in account of daughter in law and you will be out of deemed to be let out property provision .Such transaction covered under clubbing provision but as shown above income from such house will be zero as treated as self occupied by daughter in law.
2. Holder of an impartible estate [Sec. 27(ii)] The holder of an impartible estate shall be deemed to be the individual owner of all properties comprised in the estate. The impartible estate, as the word itself suggests, is a property which is not legally divisible.
3. Member of a Co-operative Society, etc. [Sec. 27(iii)] A member of a co-operative society, company or other association of person to whom a building or part thereof is allotted or leased under a House Building Scheme of a society/company/association, shall be deemed to be owner of that building or part thereof allotted to him, although the co-operative society/company association is the legal owner of that building.
4. Person in possession of a property [Sec. 27(iiia)] A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of the nature referred to in sec. 53A of the Transfer of Property Act shall be the deemed owner of that house property. This would cover cases where the
- a) possession of property has been handed over to the buyer;
- b) sale consideration : has been paid or promised to be paid to the seller by the buyer ;
- c) sale deed has not been executed like power of attorney/agreement to sell/will, etc., have been executed.
- d)The agreement in writing.
The buyer would be deemed to be the owner of the property, although it is not registered in his name.
5. Person having right in a property for a period not less than 12 years [Sec. 27(iiib)] A person who acquires any right in or with respect to any building or part thereof, by virtue of any transaction as is referred to in sec. 269UA(f), i.e., transfer by way of lease for not less than 12 years shall be deemed to be the owner of that building or part thereof. This will not cover the case where any right by way of lease is acquired on month-to-month basis or for a period not exceeding one year.