Tax Treatment of Composite Rent, Unrealized Rent.

Tax Treatment of Composite Rent-

Composite rent means when the landlord or owner of a property receives rent in respect of building let out including (1) Other assets as for example furniture, fixtures, plant, and machinery. (2) For other services provided in the building, for e.g.

(I) Renting of building and provisions of other services

In such a case composite rent includes rent of buildings and charges for different services (like lift, watchman, electricity supply, etc.). In this situation, composite rent is to be split up and the sum attributable to the use of property is to be assessed under the head “Income from house property” and charges for various services will be taxed under the head “Profits and gains of business or profession” or “Income from other sources”

(II) Renting of building and other assets:

In such a case, composite rent includes rent of building and rent of other assets. This situation can further be classified as follows:

(a) Letting out of the building and letting out of other assets are non-separable (i.e., both the lettings are composite and not separable) (e.g., letting out of equipped theatre). In this situation, entire rent is taxed under the head “Profits and gains of business or profession” or “Income from other sources”. This rule is applicable even if the rent of both lettings is fixed separately.

(b) Letting out of the building and letting out of other assets are separable. In this situation rent of building is taxed under the head “Income from house property” and the rent of other assets is taxed under the head “Profits and gains of business or profession” or “Income from other sources”. This rule is applicable even if the assessee receives composite rent for both the lettings.

What is Unrealised rent?

Unrealized rent is the portion of your house rent amount which is not realized from the tenant for some reason. While deriving actual rent received or receivable for the purpose of calculating gross annual value, the unrealized rent has to be deducted from it.

What Is the Tax Treatment Of Unrealised Rent?

Treatment When unrealized rent or part thereof is realized subsequently, then the same would be chargeable to tax under the head 'Income from house property' to the extent such amount together with the actual rent receivable (ARR) of the previous year to which it relates, exceeds GAV of that year.

(A) When unrealized rent pertaining to assessment year 2018-19 or any earlier assessment year is subsequently realized:

When unrealized rent pertaining to assessment year 2018-19 or any earlier assessment year which was allowed as deduction (in assessment year 2018-19 or earlier assessment year) is subsequently realized, then the amount so realized will be taxed (in the previous year in which it is received) under the head “Income from house property”. Such an amount will be charged to tax without allowing any deduction. Such an amount is charged to tax even if the property is not owned by the assessee in the year of recovery/receipt of unrealized rent.

(B) Unrealized rent pertaining to previous year 2018-19 or subsequent year is subsequently realized:

In such a situation out of unrealized rent subsequently realized, amount to the extent it has not been included in the annual value earlier, shall be deemed to be the income chargeable to tax under the head “Income from house property”. Such an amount shall be charged to tax in the previous year in which it is received. It is important to note that such an amount is charged to tax whether or not the assessee owns the property in the year of receipt.