Can Rental Income Be Taxed in the Hands of Someone Who Isn’t the Registered
Owner?
Q1: Who is normally taxed for rental income under Indian tax laws?
A:
Under the Income Tax Act, rental income is generally taxed under the head "Income from
House Property", and it is taxed in the hands of the legal or registered owner of the
property. Ownership here refers to the person who holds title to the property, not just
physical possession.
Q2: What if rent is received by someone who is not the legal owner?
A:
If a person receives rental income without being the legal or registered owner, such
income cannot be taxed under ‘Income from House Property’. Instead, it will be taxed
under ‘Income from Other Sources’, unless the law deems that person to be the owner
under specific provisions.
Q3: Are there exceptions where someone is deemed to be the owner even if not
registered as such?
A:
Yes, under certain provisions of the Income Tax Act, a person can be deemed to be the
owner and taxed under ‘Income from House Property’. These include:
Transfer to spouse or minor child without adequate consideration
If a person transfers property to their spouse or minor child without fair consideration, the
transferor is still deemed the owner and is liable to pay tax on the rental income.
Example:
Mr. A transfers his house to his wife without any payment. The house is then rented out. In
this case, even though the rent is received by the wife, it will be taxed in the hands of Mr. A.
Holder of an impartible estate
In the case of ancestral property that is legally indivisible (impartible), the person holding
such property is deemed to be the owner, even if it is not registered in his name.
Example:
In a royal family, an ancestral palace is leased out. Only the eldest son can control or lease
the property. He is deemed the owner and taxable on the rental income, even if legal title is
shared among heirs.
Members of housing co-operative societies
When a property is allotted or leased under a housing scheme by a co-operative society or
a company, the allottee is treated as the owner, even if the land or flat is in the society’s
name.
Example:
Mrs. B is a member of a housing co-operative that allots her a flat. She rents it out. Even
though the property belongs to the society, Mrs. B is taxed on the rent as the deemed
owner.
Lessee with a lease exceeding 12 years
If a person holds a long-term lease (12 years or more, including renewal options), they are
treated as the owner for tax purposes and rental income received is taxed under ‘Income
from House Property’.
Example:
XYZ Ltd. takes a warehouse on a 15-year lease and sublets it to another party. XYZ Ltd. is
deemed the owner, and rental income is taxed under the head ‘Income from House Property’.
Q4: How is income taxed in case of sub-letting by a tenant?
A:
When a tenant sublets the property, any rent received is not taxed as income from house
property because the tenant is not the owner. It is taxed under ‘Income from Other
Sources’.
Example:
Mr. C rents a flat for ₹20,000/month and sublets it for ₹30,000/month. The ₹10,000 income
he earns is taxed under 'Income from Other Sources'.
Q5: Can oral agreements or possession without documentation be considered for
tax ownership?
A:
No, mere possession or oral agreement without ownership rights or deemed ownership
provisions is not sufficient. The tax department relies on documented ownership or
deemed ownership clauses under the law.
Conclusion:
Rental income is generally taxable in the hands of the registered or deemed owner under
‘Income from House Property’. However, tenants, licensees, or other recipients
without ownership rights are not taxed under this head and their income from such rent is
taxed under ‘Income from Other Sources’.
For accurate compliance, one must identify whether the recipient qualifies as the legal
owner, deemed owner, or neither, as this significantly affects tax treatment and
deductions available...