Direct and Indirect Taxation · Income from House Property

Chargeability and Basis of Income from House Property

Updated 10 October 2026 · Fact-checked

Under section 20 of the Income-tax Act, 2025, the annual value of buildings or land appurtenant to them is taxed under Income from house property in the hands of the owner. It does not apply to portions the owner occupies for his own business or profession. Deemed owners under section 25 are also taxed.

Understand Chargeability and Basis of Income from House Property

Income from house property is one of the heads of income. Section 20 is its charging provision. It says that the annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee, is chargeable under this head.

So three things must be present. First, the property must be a building or land appurtenant to a building, such as a garden, parking area or compound. Second, the assessee must be the owner. Third, the property must not be the portion the owner uses for his own business or profession.

The tax is on the owner, not on the occupant. It does not matter whether the owner lets the property out, lives in it or keeps it vacant. The charge is on the annual value, not on the actual rent in every case. Computing annual value is a separate topic.

Section 20(2) gives the exclusion. If you occupy a portion of your property for your own business or profession and the profits of that business are taxed, that portion is not taxed here. Its use is reflected in the business profits. A shop owned by a trader and used by him for his own trade is the classic case.

Section 25 widens the word owner for sections 20 to 24. A person who is not the legal owner may still be treated as owner. This is the deemed owner rule. It matters because tax follows the deemed owner, who must then compute the income.

Key rules to remember

Charging rule (section 20(1)): Taxable under house property = annual value of building or appurtenant land owned by the assessee; Three tests: building or appurtenant land, ownership, and not used by the owner for his own business or profession.
Exclusion (section 20(2)): Portion occupied by assessee for his own business or profession (profits taxable) → not taxed under this head; The exclusion covers only the portion so occupied. Other portions remain chargeable.
Deemed owner: transfer to spouse or minor child: Individual who transfers property without adequate consideration to spouse (not under agreement to live apart) or minor child (not a married daughter) = owner; Section 25(a). The transferor, not the spouse or child, is treated as owner here.
Deemed owner: impartible estate: Holder of an impartible estate = individual owner of all properties in the estate; Section 25(b).
Deemed owner: member of society or company: Member of a co-operative society, company or association allotted or leased a building or part under a house building scheme = owner; Section 25(c).
Deemed owner: part performance of a contract: Person allowed to take or retain possession in part performance of a contract of the nature in section 53A of the Transfer of Property Act, 1882 = owner; Section 25(d). Registration of the title is not needed for this rule.
Deemed owner: acquiring rights: Person acquiring rights by sale, exchange or lease of 12 years or more (not a lease from month to month or for one year or less) = owner; Section 25(e)(i). Section 25(e)(ii) covers other transactions, except sale, exchange or lease, that enable enjoyment of the property.

How to solve Chargeability and Basis of Income from House Property questions

Use this order for any question asking whether an income is taxable as house property income, or in whose hands.

1Identify the asset. Check that it is a building or land appurtenant to a building, and not bare land held as an investment or stock.
2Identify the owner. Start with the legal owner, then test the section 25 list for any deemed owner.
3If a deemed owner exists, tax that person and not the legal owner for the relevant property or part.
4Check section 20(2). Find any portion the owner occupies for his own business or profession whose profits are taxable. Exclude that portion.
5Note any other exemption or special case, such as exempt income from house property, and mention it if given.
6State the conclusion in one line: who is taxed, on which property, under which head.
7Only then move to computing annual value and deductions, if the question asks for it.

Quickest way: Three-question test

When to use it: For MCQs and short true-or-false style questions on chargeability.

Is it a building or appurtenant land? If not, stop.
Who is owner or deemed owner? Match the facts to section 25(a) to (e).
Is the owner using it for his own business or profession? If yes, that portion is out under section 20(2).
If all three pass, the annual value is taxed under Income from house property.

Common mistakes in Chargeability and Basis of Income from House Property

Taxing the tenant or occupant instead of the owner.
Students link income with whoever uses the property.
Fix: Remember that section 20 taxes the owner. Occupation matters only for the section 20(2) business exclusion.
Excluding the whole property because part is used for business.
Students read section 20(2) too broadly.
Fix: Only the portion occupied for the owner's own business or profession is excluded. Let-out or other portions are still chargeable.
Applying the business exclusion when the premises are let to a firm or another person for business.
The word business in the section causes confusion.
Fix: The exclusion needs the assessee to occupy the portion for his own business or profession. Rent from letting is house property income.
Treating a transfer to a spouse as always making the spouse the owner.
Students forget the deemed owner rule in section 25(a).
Fix: If the transfer is without adequate consideration, the transferor stays the owner. Exceptions: adequate consideration or an agreement to live apart.
Treating a married daughter like any minor child under section 25(a).
Students remember minor child and miss the bracket.
Fix: The rule covers a minor child other than a married daughter. Transfers to a married minor daughter do not trigger it.
Calling a person who holds a monthly or one-year lease a deemed owner.
Students skip the lease condition in section 25(e).
Fix: Rights by lease from month to month or for one year or less are excluded. Lease by transfer must be for not less than twelve years.

Worked examples

Example 1

Mr. Rao owns a three-storey building in Pune. He uses the ground floor for his own chartered accountancy practice. The first floor is let to a company for its office and the second floor is his residence. Which portions are charged under Income from house property?

Show the solution

The building is owned by Mr. Rao, so section 20(1) applies to it.
The ground floor is occupied by him for his own profession. Its profits are chargeable. Under section 20(2) it is excluded.
The first floor is let to a company. Mr. Rao does not occupy it for his own profession, so it is chargeable.
The second floor is his residence. It is not used for business, so it stays within section 20(1) and its annual value is computed under this head.

Answer: The first and second floors are chargeable under Income from house property. The ground floor is excluded under section 20(2).

Example 2

Mrs. Meena gifts a flat in Chennai to her husband Mr. Suresh without any consideration. They live together. Mr. Suresh lets out the flat. Who is the owner for house property income?

Show the solution

Mrs. Meena transferred property to her spouse without adequate consideration.
They do not live apart under an agreement, so the exception does not apply.
Under section 25(a), the transferor individual is included in the meaning of owner. So Mrs. Meena is the deemed owner for sections 20 to 24.
The income is therefore taxed under Income from house property in Mrs. Meena's hands, not Mr. Suresh's.

Answer: Mrs. Meena is treated as owner under section 25(a), and the rental income is taxed in her hands under Income from house property.

Exam tips

MCQs often test the deemed owner list. Learn the five clauses of section 25 as short phrases.
Write the three conditions of section 20(1) before applying them in a written answer. Examiners give marks for stating the rule.
Underline words like own business, without adequate consideration and not less than twelve years in the question. They decide the answer.
Separate the portions of a mixed-use building in a table or list. Treat each portion on its own.
Do not compute annual value if the question asks only about chargeability. Answer exactly what is asked.

Practice questions from Income from House Property

Chargeability and Basis of Income from House Property in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Chargeability and Basis of Income from House Property: frequently asked questions

Who is taxed under Income from house property?

The owner of the building or appurtenant land is taxed. Under section 25, certain persons who are not legal owners are also treated as owners, such as a person allowed possession in part performance of a contract.

Is rent actually received necessary for the charge to apply?

Section 20 charges the annual value of the property owned by the assessee. The charge does not depend on rent being received. How annual value is found is covered in the annual value topic.

Is a property used for the owner's own business taxed as house property?

No, to the extent the owner occupies a portion for his own business or profession and the profits are taxable. Section 20(2) excludes that portion. The use is reflected in the business income.

Who is a deemed owner under section 25?

A deemed owner includes a transferor to spouse or minor child without adequate consideration, the holder of an impartible estate, a member of a society allotted a building under a house building scheme, a person in possession under a section 53A type contract, and a person acquiring rights by sale, exchange or long lease.