3.a Chargeability¶
Income from House Property¶
Income from house property is a significant category under income tax law, specifically dealt with under Section 22 of the Income-tax Act. This section charges tax on the annual value of any property comprising of buildings or lands appurtenant thereto, of which the assessee is the owner. The following points provide a detailed understanding of the conditions and intricacies involved in the chargeability of income from house property.
1. Chargeability [Section 22]¶
(i) Computation of Income¶
The computation of income under the head "Income from house property" begins with the determination of the annual value of the property. The annual value is determined based on guidelines laid down in Section 23.
(ii) Annual Value¶
The annual value of any property, which includes buildings or land appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head "Income from house property."
Exceptions¶
Certain properties are not chargeable under this head: - Portions of Property Occupied for Business/Profession: Portions of the property occupied by the assessee for the purpose of any business or profession carried on by him. - Properties Used for Letting Out Business: Properties of an assessee engaged in the business of letting out properties are chargeable under "Profits and gains of business or profession."
2. Conditions for Chargeability¶
(i) Property Should Consist of Building or Land¶
- Buildings Include: Residential buildings, factory buildings, offices, shops, godowns, and other commercial premises.
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Land Appurtenant: Land connected with the building, such as gardens, garages, etc.
Note: Income from letting out of vacant land is taxable under the head "Income from other sources" or "Profits and gains from business or profession."
(ii) Ownership of the Property¶
- Owner Defined: The owner is the person entitled to receive income from the property in their own right.
- Registration of Sale Deed: The requirement of registration of the sale deed is not warranted for tax purposes.
3. Ownership Criteria¶
(c) Free-hold and Lease-hold Rights¶
Ownership can include both free-hold (full ownership) and lease-hold (ownership for a limited period under a lease).
(d) Deemed Ownership¶
Ownership also includes deemed ownership, where a person is considered the owner for tax purposes even if they do not hold the legal title. This concept is discussed in detail later under point 2.11.
(e) Separate Ownership of Building and Land¶
The owner of a building is not necessarily the owner of the land upon which it stands. These can be separately owned entities.
(f) Ownership During Previous Year¶
For tax purposes, the assessee must be the owner of the house property during the previous year (the financial year preceding the assessment year). Ownership status during the assessment year is irrelevant.
(g) Disputed Ownership¶
If the ownership title of the property is under dispute in a court of law, the Income-tax Department will decide who is chargeable to income tax under Section 22 until the court reaches a decision.
4. Important Considerations¶
- The concept of deemed ownership is crucial in scenarios where legal ownership is not straightforward. Understanding this concept, especially as elaborated in point 2.11, is important for accurate tax computation.
- The distinction between ownership of the building and the land upon which it stands can have significant tax implications, especially in cases where different parties own the building and the land.
- The period of ownership during the previous year is a key determinant in assessing tax liability under this section.
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