Deemed Rental Income on House Property

Housing Society Law

Posted by Aditya Pratap Law Offices on 01 Mar 24

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What is income from house property ?

Income from House Property covers the rent earned from the House property which is chargeable to tax. Sometimes, the owner may have to pay tax on ‘deemed rent’ in case the property is not let out. The income from house property is included in a person’s gross total income only if it satisfies three essential conditions:

1. The assessee is the owner of that property.

2. The property must consist of house, buildings or land.

3. The property may be used for any purpose except used by the owner for the purpose of running his business or profession.

Section 27 of the Income Tax Act defines deemed ownership of the house property for the purpose of levying tax as:

1. Transfer of ownership to a spouse or minor child

2. Holder of impartible estate. Impartible estate refers to the property which is not legally divisible such as dividing a single storey house with say 3 rooms among 7 heirs.

3. Property held by a member of a co-operative society

4. Any person who has acquired a property under Power of Attorney transaction.

How much is deducted from house property before levying of taxes ?

While computing the income earned from letting out the property, one can avail (where eligible) various deductions available under section 24 of the Income Tax Act to arrive at the net taxable income from house property income. These deductions include standard deduction of 30 per cent, the deduction of municipal taxes and deduction of interest paid on home loan which is allowed under this head.

Set-Offs and Carry forwards of the losses from Income from House Property

Section 70 of the Income Tax Act allows a person to set off any losses from the house property from the income of any other house property.

Section 71 of the I-T Act allows setting off the losses from house property from the other heads of the Income but not from the casual income i.e. any income which is not likely to occur again in the year.

The unadjusted losses are allowed to be carried forward for a maximum of 8 years starting from the year subsequent to the year in which loss has occurred. In the subsequent years, the set-off is allowed only from the head ‘Income from House Property’.

The amount of losses that can be set-off on the house property from other income heads is restricted to Rs 2 lakh either house is self-occupied or let out property.

Example: If you have three house properties, out of which you live in one of them, and the other two are not given on rent, then any two out of three house properties can be considered as ‘self-occupied’. The third one will then be considered as deemed to be let out and taxed accordingly.

Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured . Views expressed are personal.