Income Under the Head House Property | Basis of Charge (Sec. 22)

[Income From House Property, Basis of Charge, Taxability of House Property Income, Income Tax Act, 1961]

Explain the Basis of Charge of Income under the head Income from House Property.

Basis of charge of tax on income generated under the “income from house property”

Under section 22 of the income tax act, The annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head ‘Income from house property’. However, if a house property, or any portion thereof, is occupied by the assessee, for any business or profession, carried on by him, the profits of which are chargeable to income-tax, the value of such property is not chargeable to tax under this head.

Thus, three conditions are to be satisfied for property income to be taxable under this head

1) The property should consist of buildings or lands appurtenant thereto: 

The scope of this head of income is limited to the income from building or land appurtenant thereto. Land which is not appurtenant to any buildings does not come within the scope of this section.

2) The assessee should be the owner of the property: 

It is only the owner of the house property who can be tax under this head of income. The tax under this section is in respect of the legal or beneficial owner and not the occupation or possession of house property.

Again, the assessee who is deemed to be the owner of the house property is also is also chargeable to tax under this head.  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:-

(a)   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.

(b)   The holder of an impartible estate is deemed to be the owner of all the properties comprised in the estate.

(c)    A member of a co-operative society, company or association of persons, to whom 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.

(d)   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) The Property must not be used own business or profession

The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. But where the profits of such business or profession are not chargeable to tax, the annual value of the house property is chargeable under this head.