Income from house property is a significant category under the Income Tax Act, 1961. Taxpayers owning property need to understand the specific conditions under which their property income becomes taxable. This blog simplifies the three essential conditions that must be met for income to be taxed under the head “Income from House Property”, as governed by Sections 22 to 27 of the Income Tax Act.

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1. The Property Must Consist of Buildings or Lands Appurtenant Thereto

The term “property” under this income head is not used in its broadest sense. It specifically includes:

• Buildings: Residential houses, office spaces, warehouses, or shops.
• Lands Appurtenant Thereto: This includes land attached to a building, such as gardens, courtyards, garages, or driveways.

Exclusions:

• Vacant Land: Income from vacant land is not taxable under this head. Instead, it is taxed as “Income from Other Sources” or “Business Income”, depending on the use.
• Agricultural Land: If the land qualifies as agricultural land, its income is excluded under other provisions.

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2. The Assessee Must Be the Owner of the Property

The taxpayer must legally own the property for its income to be taxable under this head. Ownership can include:

• Freehold Ownership: The property is owned outright without any encumbrances.
• Leasehold Ownership: Ownership limited to the building, not the land on which it stands.

Special Ownership Rules:

• Deemed Ownership (Section 27): Certain situations treat individuals as owners for taxation purposes, even if they are not the legal owners. Examples include:
  • Transfer of property to a spouse or minor child without adequate consideration.
  • Members of cooperative societies, housing boards, or associations who possess property rights.

Exceptions:

If a person sublets a rented property, the income received from the sublet is not taxed under this head because the person is not the property owner. Instead, it is taxed as “Income from Other Sources” or business income.

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3. The Property Must Not Be Used for the Owner’s Business or Profession

If the property is used for the owner’s business or profession, its income is excluded from “Income from House Property” and is instead considered under “Income from Business or Profession.”

Illustration:

1. If a shop owned by the taxpayer is used for their retail business, the income generated from the shop is taxed under business income.
2. Conversely, if the shop is rented out to another party, the rental income is taxable under “Income from House Property.”

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Key Notes on Taxability

1. Self-Occupied Properties: If the property is self-occupied for residential purposes, its annual value is considered nil under Section 23(2).
2. Deemed Let-Out Property: If a person owns more than two self-occupied properties, the others are treated as deemed let-out and taxed accordingly.

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Frequently Asked Questions

1. What happens if I own multiple self-occupied properties?

Under Section 23(4), you can treat up to two properties as self-occupied. The others are deemed to be let-out, and their annual value is taxable.

2. Is rental income from subletting taxed under this head?

No, rental income from subletting is not taxed under this head as the subletter is not the owner. It is taxed under “Income from Other Sources.”

3. Are properties owned by co-owners taxed differently?

Yes, properties with co-ownership are taxed separately for each co-owner based on their share of ownership.

4. Can vacant land income be taxed as “Income from House Property”?

No, vacant land income is taxed under “Income from Other Sources” or “Business Income,” depending on its use.

5. What if a property is under dispute for ownership?

Until ownership is resolved, the income is taxed in the name of the person who enjoys possession and benefits from the property.

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Additional Resources

Learn more about disputed ownership and tax laws on the official Income Tax India website.

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