How composite rent is taxable under the head house property

Composite rent means the house owner charges rent to the tenant for renting the house property and also on account of services provided by the landlord for various facilities such as lift, gas, water, electricity, watch and ward, air conditioning etc.

In such a case, composite rent has to be split up to following two components;

  • Rent for the portion attributable to the letting of the premises; and
  • Rent for rendering services.

Portion of rent attributable to the letting of the premises is assessable to tax under the head income from house property and the other portion attributable for rendering services such as lift, watchmen, water and electricity facilities is taxable under the head income from other sources.

Tax when composite rent is not separable

If the composite rent is not separable, then the entire income can be taxed under the head income from business or other sources, based on different facts. This means rent from property and from services can not be identified or separated to tax it separately. If it can be separated, then as discussed above, the portion of the income attributable to the letting of the premises shall be assessable as ‘income from house property’ and the other portion for letting other assets or providing services shall be taxable either as business income or income under the head other sources.

Assessee’s business is to let out property

If assess is carrying on this type of business in an organized manner and its the business of the company to carry out such activities, then income from it will be taxable as business income. However, the assessee has to prove that the main business is to acquire or built property and to let out those properties to tenants.

Where the landlord has executed a separate agreement for providing services to tenant such as watchman, gardner etc, the value of such amenities as charged to the tenant will not be considered while calculating annual value under section 23 of the income tax act, 1961.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.