C.— Income from house property

Income from house property

20(1)

The annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee shall be chargeable to income-tax under the head “Income from house property”.

20(2)

The provisions of sub-section (1) shall not apply to such portions of the property, as occupied by the assessee for his business or profession, the profits of which are chargeable to income-tax.

Explanation

Section Summary:

This section deals with the taxation of income generated from house property. It specifies that the annual value of any building or land attached to it, owned by the taxpayer, is taxable under the head "Income from house property." However, if the property is used for the taxpayer's business or profession, the income from that portion of the property is not taxed under this head.

Key Changes:

• Clarification on Business Use: The section explicitly states that if a portion of the property is used for business or profession, the income from that portion is not taxable under "Income from house property." This is not a new concept but reinforces the existing principle in the Income Tax Act.

Practical Implications:

• Taxpayers with Mixed-Use Properties: If a taxpayer owns a property and uses part of it for business or profession, only the portion not used for business will be taxed under "Income from house property." The portion used for business will be taxed under "Profits and gains of business or profession."
• Compliance Burden: Taxpayers must accurately determine and report the portion of the property used for business to avoid incorrect tax filings.

Critical Concepts:

• Annual Value: This is the notional rent that a property could fetch if it were rented out. It is used to calculate taxable income from house property.
• Appurtenant Land: This refers to land attached to the building, such as a garden or parking area, which is considered part of the property for taxation purposes.
• Interaction with Other Laws: This section interacts with other provisions of the Income Tax Act, particularly those related to business income (e.g., Section 28) and deductions (e.g., Section 24).

Compliance Steps:

1. Determine Property Usage: Identify which portions of the property are used for business or profession and which are not.
2. Calculate Annual Value: For the non-business portion, calculate the annual value based on notional rent.
3. File Accurate Returns: Ensure that the income from the business portion is reported under the correct head ("Profits and gains of business or profession") and the non-business portion under "Income from house property."

Examples:

• Scenario 1: A taxpayer owns a building with two floors. The ground floor is used for running a retail store (business), and the first floor is rented out. Only the first floor's rental income will be taxed under "Income from house property." The ground floor's income will be taxed under "Profits and gains of business or profession."
• Scenario 2: A taxpayer uses 30% of their property for a home office (business) and the remaining 70% is rented out. Only 70% of the property's annual value will be taxed under "Income from house property," while the 30% used for business will be taxed under the appropriate business income head.

This section ensures clarity on how mixed-use properties are taxed, helping taxpayers comply with the law accurately.