House Property under the Income-tax Act, 2025

Chargeability, Ownership and Deemed Ownership Rules

The Income-tax Act, 2025 applies from 1 April 2026. Accordingly, income relating to Tax Year 2026-27 and subsequent tax years is governed by the new Act. Matters relating to earlier periods continue to be governed by the Income-tax Act, 1961, subject to the applicable transitional and saving provisions.

Under the new law, the basic rules for taxing income from house property are contained mainly in sections 20 to 25. Before calculating taxable income from a property, it is important to determine whether the receipt is taxable under the head "Income from house property" and who is regarded as the owner for income-tax purposes.

When is income taxable as Income from House Property?

Section 20 of the Income-tax Act, 2025 provides for taxation of the annual value of a property consisting of a building or land appurtenant to a building where the property is owned by the assessee.

Broadly, the following conditions should be examined:

1. The property should consist of a building or land appurtenant to a building.
2. The assessee should be regarded as the owner of the property.
3. The relevant portion of the property should not be occupied by the owner for carrying on their own taxable business or profession.

A house property does not necessarily mean only a residential house or flat. Commercial buildings can also fall within this head.

1. Property must be a building or land appurtenant to a building

The house-property provisions can apply to different types of buildings, including:

• Residential houses and flats
• Office premises
• Shops
• Godowns and warehouses
• Commercial buildings
• Factory buildings
• Land forming an integral part of a building, such as a garden, garage or parking area

Example

Meera owns a commercial shop with an attached parking area and lets the entire premises for ₹45,000 per month. Since the parking area is connected with the building, the rental arrangement would ordinarily be considered while computing income from house property.

If Meera separately owns an empty plot and gives it on rent for temporary storage, the rent from that vacant plot would not automatically become income from house property.

2. The assessee must be the owner

Ownership is one of the fundamental requirements for taxation under the head "Income from house property".

However, income-tax law does not look only at the name appearing on the registered title deed. Section 25 of the Income-tax Act, 2025 extends the concept of ownership to certain persons who may not technically be the legal owner.

Such persons are commonly referred to as deemed owners.

Who can be treated as a deemed owner?

Transfer of property to spouse without adequate consideration

If an individual transfers a property to their spouse without adequate consideration, the person transferring the property can continue to be treated as its owner for purposes of taxation under the house-property provisions.

An exception applies where the transfer takes place under an agreement to live apart.

Example

Arjun owns a residential flat and transfers it to his wife Kavya without receiving adequate consideration. Kavya subsequently lets out the flat.

For purposes of computing income from house property, Arjun may be treated as the owner under section 25 even though the property has been transferred to Kavya.

Transfer to a minor child without adequate consideration

A similar rule applies where an individual transfers property to a minor child without adequate consideration. The transferor can be treated as the owner for house-property taxation.

However, this deemed ownership rule does not apply to a transfer made to a minor married daughter.

For this purpose, the meaning of child also includes a step-child and an adopted child.

Holder of an impartible estate

An impartible estate is a property or estate that cannot legally be divided in the normal manner. The holder of such an estate is treated as the individual owner of the properties forming part of that estate for purposes of house-property taxation.

Member of a co-operative society, company or association

A person may be treated as the owner even where the legal title to a building is held by a co-operative society, company or association.

This can apply where a building or part of a building is allotted or leased to a member under a house-building scheme.

Example

Rohan is a member of a co-operative housing society. The society legally owns the building, but Flat 302 has been allotted to Rohan under the society's housing arrangement.

If Rohan lets out the flat, he may be treated as its owner for income-tax purposes even though the underlying legal title continues to be held by the society.

Person possessing property under part performance of a contract

A purchaser may obtain possession of a property and substantially perform the purchase agreement even though the final transfer or registration has not yet been completed.

Section 25 covers a person who is allowed to take or retain possession of a building in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.

Example

Neha agrees to purchase a property from a developer for ₹80 lakh. She pays the agreed consideration and receives possession under the relevant contractual arrangement, while final registration formalities are still pending.

If the statutory conditions are satisfied, Neha may be treated as the owner for purposes of taxation under the head "Income from house property".

Person having long-term rights in a property

Certain long-term rights in a building can also result in deemed ownership.

The provisions cover specified transactions involving sale, exchange or an original or extendible lease for a period of not less than 12 years, as well as certain arrangements that effectively enable a person to enjoy the property.

What if the owner uses the property for their own business?

There is an important exception to the general house-property taxation rule.

Where a portion of a property is occupied by the owner for carrying on their own business or profession and the profits of that business or profession are chargeable to tax, the annual value of that portion is not taxed under the head "Income from house property".

Example

Anita owns a three-storey building:

• The ground floor is used for her own architecture practice.
• The first floor is rented to another business.
• The second floor is rented as office space.

The ground floor would not ordinarily be taxed by determining an annual value under the house-property head because Anita uses it for her own taxable profession.

The tax treatment of the rented floors would have to be examined separately.

Residential house letting has a specific rule

Under section 26(4) of the Income-tax Act, 2025, income from letting a residential house or a part of a residential house by its owner is chargeable under the head "Income from house property" and not as business income.

What about commercial property letting?

Commercial property requires a closer examination of the facts.

Where a person simply owns a commercial property and lets it out, the house-property provisions may apply.

However, where the assessee is engaged in a business whose activity itself consists of letting commercial properties, the classification of the income may depend on the nature of the activity and the applicable legal principles.

Residential house letting should therefore not automatically be treated in the same manner as commercial property letting.

What about sub-letting?

A tenant who takes a property on rent and subsequently sub-lets it is generally not the owner merely because they receive rent from the sub-tenant.

Therefore, income from sub-letting does not automatically become income from house property.

Depending on the facts, such income may instead be considered under:

• Profits and gains of business or profession; or
• Income from other sources.

Income-tax Act, 1961 vs Income-tax Act, 2025

For house-property taxation, the Income-tax Act, 2025 reorganises and renumbers several provisions contained in the Income-tax Act, 1961. The fundamental concepts of ownership and chargeability largely continue, but the new section numbers should be used for Tax Year 2026-27 onwards.

Conclusion

Under the Income-tax Act, 2025, classification of rental income begins with two important questions: what type of property is involved and who is treated as its owner?

Section 20 establishes the basis for taxation of income from house property, while section 25 extends the meaning of ownership beyond the person whose name appears on the legal title.

Transfers to a spouse or minor child, co-operative housing arrangements, possession under specified contracts and certain long-term rights in property can therefore affect who is taxed.

Correctly identifying ownership and the manner in which the property is used is the first step before calculating annual value, deductions and taxable income from house property.

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