Rent on vacant plot is taxable in India if it’s generated or accrued in India. But the question is under which head and how it’s taxable.
We have five major heads under which income generated or earned in India is taxable. Many taxpayers think that rent on vacant plot is taxable under the head income from house property. But in reality, it’s not correct.
Chargeability under the head income from house property is defined under section 22 of income tax act. As per section 22 of income tax act, rent will be taxable under the head income from house property only when the property owned consists of building or lands appurtenant thereto and such property is not used by the owner for the purpose of business or profession.
Appurtenant there to means attached or forming part of the building such as kitchen garden, motor garage, cattle-shed, backyards, playgrounds, courtyards, compounds and approach roads to and from public streets.
Rent from all other property which is not building or lands appurtenant there to, can not be taxed under the head income from house property. This means vacant plot which is not appurtenant to building will not be taxable under the head income from house property.
Now, we have two more heads left under which rent on vacant plot can be taxed i.e. income under the head ‘profits and gains of business or profession’ and ‘income from other sources’. Other two heads ‘salary’ and ‘capital gain’ can not be considered as rent is neither paid by employer nor a capital gain.
Rent on vacant plot will be taxed under the head ‘profits and gains of business or profession’ if it’s a regular business of the taxpayers. Otherwise, such income will be taxed under the residual head of income i.e. income from other sources.