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Deemed Ownership and Taxation of Rental Income

"Income from House Property" is one of the five sources of income on which an assessee is chargeable to tax. With respect to the Chargeability Section 22 of Income Tax Act, there are certain conditions to be met for basis of tax on rental income. These are:

The property should consist of buildings or lands attached or situated in vicinity of such building.
The asses see should be the owner of the property.
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. In other words, it must be let out to derive rental income.

Here it should also be noted that rental income from vacant land or plot is taxable as "Income from Other Sources".

However in certain cases, the Act U/S 27 allows certain people to be treated as owners of the property even though they are not the legal owners. Such "deemed" owners thereby become liable to tax on property income.

Who are Deemed Owners of House Property?

Where an individual transfers property to spouse/minor child other than for adequate consideration ; AND

if transfer is to spouse - it is not related to an agreement to live apart. Meaning to say if the couple is living together and the individual has transferred property to the spouse other than for adequate consideration OR
if transfer is to minor child - the minor child is not a married daughter. Meaning to say if the individual transfers property to minor son or unmarried minor daughter other than for adequate consideration

In either of the above 2 cases, the individual (transferor) is treated as the Deemed Owner of the property (even if he is not the legal owner). If such property is put on rent, he becomes liable to pay tax on any rentals derived.

2. The holder of an impartible estate will be treated as the owner of the entire property. e.g. where a Hindu Undivided Family (HUF) holds a property on behalf of all its members, the HUF will be treated as the deemed owner of such property, though any individual member of the HUF may be its legal owner.

3. A member of a co-operative society, company or AOPs, to whom a building or a part of building is allotted/ leased under a house building scheme of the same society/company/association, is treated as deemed owner of such property.

4. A person, who is allowed to take or retain possession of any building or part thereof in part performance of a contract within the meaning of Section 53A of the Transfer of Property Act , shall be deemed to be the owner of that building or part thereof.

5. If lease is for 12 years or more then the lessee shall be deemed to be the owner of the property and income from that property will be taxable in his hands as 'Income from House Property'.

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