Income from Letting of Machinery, Plant or Furniture and Composite Letting

Understand Income from Machinery, Plant or Furniture Letting and Composite Letting

Key rules to remember

Head for rent of machinery, plant or furniture

Rent from own machinery, plant or furniture (not business income) → Income from Other Sources

If the assessee is in the business of letting, tax it as business income instead.

Composite letting – inseparable

Building + machinery/plant/furniture, letting inseparable → whole rent under Other Sources

No House Property head for any part. No 30% standard deduction.

Composite letting – separable

Building rent → House Property; rent of machinery/plant/furniture → Other Sources

Compute each head separately using its own deduction rules.

Computation under Other Sources

Income = Gross rent − (current repairs + insurance + depreciation + other expenses wholly and exclusively for earning the rent)

Depreciation is on the assets let out, at the prescribed rates. Capital and personal expenses are not allowed.

Expenses on the building in inseparable composite letting

Repairs, insurance and depreciation on the building are also deducted from the composite rent

They are deductible because the whole rent is under Other Sources.

How to solve Income from Machinery, Plant or Furniture Letting and Composite Letting questions

1. 1Check whether the assessee is in the business of letting. If yes, compute business income and stop here.
2. 2Identify what is let out: only movable assets, or a building together with them.
3. 3If a building is also let, decide if the letting is separable or inseparable. Look for separate agreements, separate rent, or wording in the question.
4. 4If inseparable, take the whole composite rent under Other Sources. If separable, split the rent and use House Property for the building part.
5. 5List the deductions allowed under Other Sources: current repairs, insurance premium, depreciation on the let assets (including the building if composite and inseparable) and other expenses wholly and exclusively for earning the rent.
6. 6Do not allow capital expenditure, personal expenses or the 30% standard deduction on this rent.
7. 7Subtract total allowed deductions from gross rent to get income under Other Sources. State the head clearly in your answer.

Quickest way: Head first, then actual expenses

Common mistakes in Income from Machinery, Plant or Furniture Letting and Composite Letting

• Taxing rent of machinery or furniture under House Property.

  Students link all 'rent' with the House Property head.

  Fix: House Property covers buildings and land appurtenant only. Rent from movable assets goes under Other Sources unless it is business income.

• Allowing the 30% standard deduction on composite rent that is inseparable.

  Students carry the House Property method into a different head.

  Fix: Under Other Sources, deduct only actual expenses. The flat standard deduction is a House Property feature.

• Splitting composite rent when the question says the letting is inseparable.

  The rent of building and furniture looks naturally separate.

  Fix: Split only if the letting is separable. If inseparable, the whole rent goes under Other Sources.

• Forgetting depreciation as a deduction.

  Students think depreciation belongs only to business income.

  Fix: Depreciation on the assets let out is allowed when computing this income. Include it whenever the question gives a figure or rate.

• Ignoring the business of letting test.

  Students jump straight to Other Sources because it is the residuary head.

  Fix: Check first whether letting is the assessee's business. If so, the income is business income.

• Deducting capital expenditure such as the cost of buying new machinery.

  Students treat any expense linked to the asset as allowable.

  Fix: Only revenue expenses wholly and exclusively for earning the rent are allowed. The purchase cost is recovered through depreciation, not as a direct deduction.

Worked examples