A taxpayer in India has to pay taxes under five heads of income, including income from house property. A person who legally qualifies to be the property owner is liable to pay taxes under this category. However, the income tax law provides for the deemed owner. While defining a deemed owner of a house property, the law elaborates on their tax liabilities.
Who is the deemed owner of a house property?
To assign tax liabilities from house property, the income tax law defines ‘owner’ and ‘deemed owner’. Both are liable to pay income tax on rent generated from house property.
Who is the owner of a house property?
The Income Tax Act, 1961, defines an owner as the person who receives rent from a house property and taxes their income under the head, income from house property. However, if the property is not registered in the name of the person receiving the rent, that is, if a tenant sub-lets the apartment, they will not be considered owners of the property. Consequently, their income will be taxed under the head, business income.
Who is the deemed owner of a house property?
The deemed owner of a house property is the person who despite not having the property title under their name is considered the actual owner of the asset. The income tax law has defined situations in which a person will be the deemed owner of a house property.
When is a person considered deemed owner of a property?
Even if the property is not registered in the name of a person, they will be considered its owner in the following situations under Section 27 of the Income Tax Act:
Property transfer to spouses and minor children
If a person transfers their house property to their spouse or their minor child without taking adequate consideration, the spouse and the child will not be considered the owners. The person making the transfer will be the deemed owner of the property. However, if a person transfers the property to their spouse as part of an agreement to live apart, he will not be considered the deemed owner. Similarly, if a person transfers a house property to a married daughter, they will not be the deemed owner.
Holder of impartible estate
The holder of an impartible estate is the deemed owner of the property comprised in the estate. Impartible estates are properties held in the name of the eldest member of a family and are not subject to partition among the members.
Members of co-operative societies
A member of a co-operative society, a company or other association of persons to whom a building (or part of it) is allotted or leased under the house building scheme of the society, company or association is treated as deemed owner of the property.
Property acquired under the Transfer of Property Act
A person buying property under Section 53A of the Transfer of Property Act is treated as deemed owner although they may not be the registered owner. According to Section 53A, the following conditions should be fulfilled for the person to be the deemed owner:
- There must be an agreement in writing.
- The purchase consideration is paid or the purchaser is willing to pay it.
- The buyer has taken possession of the property in pursuance of the agreement.
In case of leases
If a property is rented for a period exceeding 12 years, the lessee is the deemed owner of the property. This holds whether the tenancy period was originally fixed or the lease agreement carries provisions for an extension. However, any right by way of lease from month-to-month or for a period not exceeding one year is not covered by this provision.
FAQs
What is a house property?
All buildings and land attached to it are house property under income tax laws. This means that a building and the land adjoining it are considered house property for tax calculation purposes under the tax law.
Under which head is rental income taxed in India?
Rental income from property is taxed under the head, income from house property.
Can a person receiving rent for a house property be considered an owner for tax calculation even if he is not the owner?
If a person receiving the rent is not the owner of the property, the rental income is not taxed under the head, income from house property.
Under which head is the rental income from a shop taxed?
To tax the rental income under the head, income from house property, the rented property should be buildings or land attached to these. Shops being a building, rental income will be taxed under the same head.
Is rental income from sub-letting taxable under the head, income from house property?
Rental income of a person other than the owner cannot be taxed under the head, income from house property. Rental income received by a tenant from sub-letting cannot be taxed under this head. Such income is taxable under the head, income from other sources or profits and gains from business or profession.
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An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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