November 28, 2022
Elaborating Tax Treatment of Composite Rent

Elaborating Tax Treatment of Composite Rent

Meaning 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.

  • Elevator or Lifts;
  • Security;
  • Generators or Power backup;

The cumulative amount so received is called “Composite Rent”.

Tax treatment of composite rent

(1) Where composite rent includes rent of building and charges for different services (lifts, security, etc.), the composite rent has to be bifurcated in the following manner –

(a) The amount apportionable to use of the property is to be assessed under section 22 as Income from house property;

(b) The amount apportionable to use of services is to be charged to tax under the head “Profit and gains of business or profession” or under the head “Income from other sources.

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(2) Where composite rent received from letting out of the building and other assets (like furniture) is not separable –

(a) If the letting out of the building and other assets are not separable i.e. the other party does not accept letting out of buildings without other assets, then the rent is taxable either as business income or income from other sources;

(b) This is applicable even if the amount receivable for the two lettings is fixed separately.

(3) Where composite rent is received from letting out of buildings and other assets and the two lettings are separable –

(a) If the building is let out along with other assets, but the two lettings are separable i.e. letting out of one is acceptable to the other party without letting of out of the other, then the income from letting out of the building is taxable under “Income from house property”;

(b) Income from letting out of other assets is taxable as business income or income from other sources;

(c) This is applicable even if a composite rent is received by the assessee from his tenant for the two lettings.

Illustration for easy understanding:

Mr.Sanyam, who is into the business of letting out premises on rent owns a commercial complex at Delhi. The income earned from House property is ₹ 20,00,000 during the previous year which includes:

  • Lift Maintenance: ₹ 1,50,000
  • Car Parking Facility: ₹ 1,00,000
  • Security: ₹ 2,00,000

He has also earned interest on loan amounted to ₹ 1,00,000. Calculate income taxable under respective heads separately.

Since Sanyam is in the business of letting out of premises on rent, all the additional services with house property provided shall be assessable under the head of Business Income.

S.no Heads Amount
1. Income from Business and Profession ₹ 4,50,000
2. Income from House Property ₹ 15,50,000
3. Income from Other Sources ₹ 1,00,000

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