In the context of income tax, the ownership of property plays a crucial role in determining tax liability under the head “Income from House Property.” While the concept of ownership may seem straightforward, the Income Tax Act, 1961, includes specific provisions that expand its scope. These provisions include cases of deemed ownership, where a person may be taxed as the owner even without legal title.

Let’s delve into who is considered the owner of a property under this income head and understand the scenarios covered by the law.

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Who Is the Owner of a Property?

The term “owner” generally refers to the legal owner who holds the title or ownership rights to a property. Ownership under the Income Tax Act is not confined to absolute ownership; it extends to certain special cases to ensure fair taxation.

Legal Ownership

The income from property is taxable in the hands of the person who:

1. Owns the property outright or has a legal title.
2. Enjoys the rights and benefits of ownership, including the right to receive income from it.

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Special Cases of Ownership: Deemed Ownership

Under Section 27 of the Income Tax Act, certain individuals are considered deemed owners even if they are not the legal owners. These include:

1. Transfer to Spouse or Minor Child

• Spouse: If an individual transfers property to their spouse without adequate consideration (except as part of a separation agreement), the transferor is deemed the owner for tax purposes.
• Minor Child: If property is transferred to a minor child without adequate consideration, the transferor is taxed as the owner. However, this does not apply to a minor married daughter.

2. Holder of an Impartible Estate

In the case of impartible estates (properties inherited indivisibly under traditional laws), the holder is deemed the owner, even if other family members have beneficial interests.

3. Members of Co-Operative Societies, Companies, or AOPs

A person to whom a property is allotted or leased under a house-building scheme by a co-operative society, company, or association of persons is deemed the owner, even if the legal title remains with the entity.

4. Property in Possession Under Section 53A of the Transfer of Property Act

A person in possession of a property under a part-performance contract (e.g., under an unregistered sale agreement) is deemed the owner if they:

• Have paid full or partial consideration.
• Have taken possession.
• Have not yet received the registered title.

5. Lessee for Long-Term Leases (12 Years or More)

A person with a lease agreement of 12 years or more is considered the deemed owner, except for leases renewable on a monthly or yearly basis.

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What About Disputed Ownership?

If the ownership of a property is under dispute in a court of law, the income from the property is taxable in the hands of the person who:

1. Currently enjoys possession or income.
2. Has not been legally divested of ownership by a final court judgment.

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Ownership in Co-Owned Properties

When a property is owned jointly by multiple individuals (co-owners), taxation depends on their defined shares:

1. Defined Shares: Each co-owner is taxed on their respective share of the property income.
2. Self-Occupied Property: If co-owners occupy the property for personal residence, each can claim the nil annual value for their portion.

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Why Does Deemed Ownership Matter?

Deemed ownership ensures that individuals cannot escape taxation by transferring legal ownership to family members or others without consideration. It prevents the misuse of ownership rules for tax evasion.

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Frequently Asked Questions

1. Is the income from a sublet property taxable under “Income from House Property”?

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

2. Can a tenant ever be considered the owner?

Yes, under Section 27, if a tenant has a lease agreement for 12 years or more, they are deemed the owner for tax purposes.

3. What happens if I transfer property to my spouse?

If you transfer property to your spouse without adequate consideration, you remain the deemed owner and are taxed on the property income.

4. How are co-owners taxed for self-occupied properties?

Each co-owner is taxed based on their share of ownership. If it is self-occupied, each co-owner can claim a nil annual value for their portion.

5. Can deemed ownership apply to a property under construction?

Deemed ownership applies once possession or benefits of ownership, such as rental income, begin. For under-construction properties, ownership rules apply upon completion.

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Additional Resources

• Learn about deemed ownership rules in detail on the official Income Tax website.

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