It is very common in India to own a house property jointly with a spouse or children. This increases the chances to receive a higher loan amount. As per Section 27 of the IT Act in some cases, the legal owner is not considered as the real owner of the property. In fact, someone else is considered as the deemed owner of the property. Therefore, the income tax implications are different in both cases.
Income from house property is taxable in the hands of its owner. In some cases, the legal owner is not considered as the real owner of the property. In such cases deemed owner is treated as an owner. He/She is liable to pay tax on income earned from such house property. Following are the cases where the person is deemed to be the owner of the property even if they are not the legal owners of the property:-
Transfer to Spouse
An individual transferring their property to their spouse otherwise than for adequate consideration. In this case, the transferor is also a deemed owner of the house property. But this excludes cases where a property is transferred to a spouse in connection with an agreement to live apart
Transfer to Minor Child
An individual transfers any house property to their minor child for inadequate consideration. In this case, the transferor shall be deemed to be the owner of that house property transferred. However, this shall not cover cases where a property is transferred to a minor married daughter
Holder of an Impartible Estate
Impartible Estate is a property that cannot be legally divided. Therefore, the holder of an impartible estate shall be deemed to be an individual owner of all the properties in the estate.
Member of a co-operative society, company, or other association of persons
A member of a co-operative society, company, or other association of persons to whom a building or part thereof is allotted under a House Building Scheme of a society/company/association, shall be deemed to be the owner of that building or part thereof allotted to him although the co-operative society/company/association is the legal owner of that building.
Possession of a Property
As per the Income Tax Act “A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof.”
Rights in a Property
A person who acquires any right in or with respect to any building or part thereof, as is referred to in section 269UA(f). This person shall be deemed to be the owner of that building or part thereof.
However, it excludes any rights by way of a lease from month to month or for a period not exceeding one year
When a house property is jointly owned by one or more persons then each joint owner is known as co-owner. As per the Income Tax Act “If house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately”. While computing Income from House Property, the annual value of the property will be taken in proportion to their share in the property.
Co-owners have equal rights to possession of the property, the right to use and the right to dispose of his share of the property.
What is meant by the annual value of the property?
Annual Value is the estimated rent that you could get if the property was rented out. However, it is based on the following factors that are key to consider while calculating the annual value: – Actual Rent received or receivable – Municipal Value – Fair rent – Standard rent – Expected rent. Gross annual value = Higher of actual rent received or Expected Rent* Expected Rent* = Higher of Municipal Value or Market rental value (in line with the Standard Rent as per Rent Control Act)
I have transferred my flat to my wife as a gift. She receives monthly rental from this flat. How will this income be taxable?
Since the flat has been given to your wife as a gift for nil consideration, you will be considered as the “deemed owner” of the house. Therefore the rent income from the flat will be clubbed in your hands and the same shall be taxed as house property income.