Section 27 of the income tax act, 1961 deals with the concept of Deemed Ownership. The actual owner of a property is not the sole person who has the burden to pay tax on it. Even though a person may not be the owner of the property, he may be liable to pay tax on it. This concept is known as deemed ownership. The person having deemed ownership is treated as an actual owner. A deemed owner also bears the burden to pay tax on income from the property.
A person having deemed ownership is said to be the implied owner. For the purpose of the tax, such a person is considered as a real owner.
Conditions where deemed ownership applies
Conveyance for an inadequate consideration
A person who conveys a property for inadequate consideration will be treated as the deemed owner of that property. Consequently, income from this property will be treated as income of the person who conveyed the property.
Transfer of Property to Spouse
In case an individual transfer any property to his/her spouse for reasons other than that for adequate consideration and is not related with an agreement to live separately consequently, the transferor is considered to be the owner of the transferred property.
Special Clause on Transfer to Spouse/Child
If a person conveys any cash or asset to his/her spouse or minor child, and the transferee receives a house property using that money or asset, the concept of deemed ownership won’t apply. However, such a transfer will attract clubbing provisions.
The holder of an impartible estate
Impartible property is that property which cannot be partitioned. Furthermore, it is that property which cannot be legally divided. Above all, The possessor of an impartible estate will be considered as the owner of that property. For instance, where a Hindu Undivided Family (HUF) together holds property on behalf of all its coparceners, the joint HUF will be treated as the owner.
Member of the society
A member of a co-operative society to whom a building has been provided under a house building scheme will be considered as the deemed owner of that property.
Pending Agreements
A person who qualifies the provisions of Section 53A of the Transfer of Property Act, 1882 will be considered as the deemed owner of that property. This contains the following situations:
- Possession of property has been given to the buyer.
- Sales consideration has been given or promised to be given by the buyer.
- Sale deed not been executed in favor of the buyer.
Furthermore, Section 53A of the Transfer of Property Act is applicable in situations where, though the agreement to buy a property has not been registered, the person who has bought the property will be treated as the owner.
Right acquired through long-term lease
A person who has a right through a long-term lease of a will be considered as the owner of that property and as a result, income from that property will be taxable in his hands. Most noteworthy, the period for a long-term lease is a period of more than 12 years.
Deemed rent
Furthermore, in situations where one owns more than one property, only one is treated as self-occupied property and all the others are considered to be let-out. In such cases, the deemed rent is open to being taxed.
Implications
Above all, the deemed rent has to be computed by calculating the rent at which the residential property may reasonably be let-out for, based on valuations of similar properties in the neighborhood or otherwise, on being certified.
Furthermore, the whole interest on a housing loan can be claimed as a deduction against the net rent. The balance rent value, if any, will be taxed under the tab Income from house property.
Summary
Deemed owners are the persons who are not the actual owner or legal owners of the property, but they are deemed or considered to be the owners of the property. This whole concept is known as deemed ownership. Furthermore, deemed ownership has been discussed under section 27 of the income tax act, 1961.
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