Income from house property
This query is : Resolved
06 March 2014
An assessee has a building consisting of 3 floors.
He has rented one floor I to a company.
The other two floors i.e Floor II and III contain machinery which are let out to another company along with machinery.
Can the assessee declare the income from floor I under house property and income from Floor II and Floor III under the head business/profession and claim depreciation on building and machinery used in those two floors.
He has rented one floor I to a company.
The other two floors i.e Floor II and III contain machinery which are let out to another company along with machinery.
Can the assessee declare the income from floor I under house property and income from Floor II and Floor III under the head business/profession and claim depreciation on building and machinery used in those two floors.
06 March 2014
all the floors shall be offered for tax under income from house property unless the assessee wishes to state that he is in business of renting out properties.
06 March 2014
If your assessee has a business of renting of immovable property than he should show all the mentioned transactions as Business Transactions and also claim Depreciation.
In other case it is advisable to show it as a Income from House Property. But to do that you have to bifurcate rent for 2nd and 3rd floor between rent for Building and rent for machinery.
So rent from Building will be shown as a Income from House Property and Rent of Machinery will be shown as Income From Other Sources.
In other case it is advisable to show it as a Income from House Property. But to do that you have to bifurcate rent for 2nd and 3rd floor between rent for Building and rent for machinery.
So rent from Building will be shown as a Income from House Property and Rent of Machinery will be shown as Income From Other Sources.
06 March 2014
Mahavir, nice explanation...
07 March 2014
Thank you sir, But if the rent from building and machinery cannot be bifurcated then what is to be done.
The business of assessee is letting out properties.
and suppose i have offered the rent from entire building under house property in 1st two years and now i want to offer it under business profession. Can i do it?
The business of assessee is letting out properties.
and suppose i have offered the rent from entire building under house property in 1st two years and now i want to offer it under business profession. Can i do it?
07 March 2014
If Business of Assessee is letting out properties than question of Bifurcation does not arises. Total rent from that building will be offered as Income from Business & Profession.
You can show it as Income from Business and Profession at any time.
You can show it as Income from Business and Profession at any time.
08 March 2014
Thank you for the reply Sir. In case i offered the income under house property in initial 2 years and in the third year i want to offer it under business profession. Now what will be depreciation provisions. on what amount will i be eligible to claim depreciation. Whether on the original cost or on the WDV as at 3rd year.
29 July 2024
To address your queries regarding income from house property and the tax treatment of different types of rental income, here is a detailed response:
### 1. **Income Declaration and Classification**
**a. Rental Income from Floor I:**
- **Income from House Property**: The rental income from Floor I, which is rented out to a company, should be declared under the head "Income from House Property."
**b. Rental Income from Floors II and III:**
- **Business Income**: If Floors II and III are let out along with machinery, the income from these floors would generally be classified as "Business Income" under the head "Profits and Gains of Business or Profession." This is because you are not merely renting out property but also letting out machinery, which constitutes a business activity.
### 2. **Depreciation Claims**
**a. For Income from House Property (Floor I):**
- **No Depreciation**: For income from house property, you cannot claim depreciation on the building. You can only claim municipal taxes and interest on home loan under Section 24(b).
**b. For Business Income (Floors II and III):**
- **Depreciation**: You can claim depreciation on the building and machinery used in Floors II and III as these are part of your business operations. The depreciation should be calculated as per the Income Tax Act, which typically involves the following:
- **Building**: Depreciation on the building is allowed if it is used for business purposes. The rates and method of depreciation are specified in the Income Tax Rules.
- **Machinery**: Depreciation on machinery should be claimed as per the applicable rates under the Income Tax Act.
### 3. **Bifurcation of Rent and Change of Classification**
**a. If Rent Cannot be Bifurcated:**
- **Allocate Rent**: If the rent cannot be bifurcated into residential and business parts, you may need to allocate the rental income proportionately between house property and business income. This allocation should be reasonable and based on the actual usage of the property.
**b. Changing the Classification:**
- **Change of Classification**: You can change the classification of rental income from house property to business income, but this would involve reclassification of income in the previous years and adjustments for depreciation.
- **Depreciation on Reclassification**: If you change the classification in the third year, you need to consider the following:
- **Depreciation Calculation**: For the period prior to the reclassification, you cannot claim depreciation under business income. For the period after reclassification, you can claim depreciation based on the WDV (Written Down Value) of the property as of the beginning of the year when the classification changes.
- **Original Cost or WDV**: Depreciation is calculated based on WDV at the time of reclassification. You will not be eligible to claim depreciation on the original cost as you will be adjusting it for the depreciation claimed or not claimed in previous years.
### Summary of Key Points:
1. **Income from Floor I**: Declared under "Income from House Property."
2. **Income from Floors II and III**: Declared under "Profits and Gains of Business or Profession," with depreciation claims on machinery and building.
3. **Bifurcation of Rent**: Allocate proportionately if rent cannot be bifurcated.
4. **Changing Classification**: You can change the classification, but depreciation claims must be based on WDV from the year of change.
For accurate calculations and to ensure compliance with tax laws, it is advisable to consult with a tax professional or chartered accountant.
### 1. **Income Declaration and Classification**
**a. Rental Income from Floor I:**
- **Income from House Property**: The rental income from Floor I, which is rented out to a company, should be declared under the head "Income from House Property."
**b. Rental Income from Floors II and III:**
- **Business Income**: If Floors II and III are let out along with machinery, the income from these floors would generally be classified as "Business Income" under the head "Profits and Gains of Business or Profession." This is because you are not merely renting out property but also letting out machinery, which constitutes a business activity.
### 2. **Depreciation Claims**
**a. For Income from House Property (Floor I):**
- **No Depreciation**: For income from house property, you cannot claim depreciation on the building. You can only claim municipal taxes and interest on home loan under Section 24(b).
**b. For Business Income (Floors II and III):**
- **Depreciation**: You can claim depreciation on the building and machinery used in Floors II and III as these are part of your business operations. The depreciation should be calculated as per the Income Tax Act, which typically involves the following:
- **Building**: Depreciation on the building is allowed if it is used for business purposes. The rates and method of depreciation are specified in the Income Tax Rules.
- **Machinery**: Depreciation on machinery should be claimed as per the applicable rates under the Income Tax Act.
### 3. **Bifurcation of Rent and Change of Classification**
**a. If Rent Cannot be Bifurcated:**
- **Allocate Rent**: If the rent cannot be bifurcated into residential and business parts, you may need to allocate the rental income proportionately between house property and business income. This allocation should be reasonable and based on the actual usage of the property.
**b. Changing the Classification:**
- **Change of Classification**: You can change the classification of rental income from house property to business income, but this would involve reclassification of income in the previous years and adjustments for depreciation.
- **Depreciation on Reclassification**: If you change the classification in the third year, you need to consider the following:
- **Depreciation Calculation**: For the period prior to the reclassification, you cannot claim depreciation under business income. For the period after reclassification, you can claim depreciation based on the WDV (Written Down Value) of the property as of the beginning of the year when the classification changes.
- **Original Cost or WDV**: Depreciation is calculated based on WDV at the time of reclassification. You will not be eligible to claim depreciation on the original cost as you will be adjusting it for the depreciation claimed or not claimed in previous years.
### Summary of Key Points:
1. **Income from Floor I**: Declared under "Income from House Property."
2. **Income from Floors II and III**: Declared under "Profits and Gains of Business or Profession," with depreciation claims on machinery and building.
3. **Bifurcation of Rent**: Allocate proportionately if rent cannot be bifurcated.
4. **Changing Classification**: You can change the classification, but depreciation claims must be based on WDV from the year of change.
For accurate calculations and to ensure compliance with tax laws, it is advisable to consult with a tax professional or chartered accountant.
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