Whether shops and offices can be considered as a self occupied property (SOP) for the purpose of exemption under the head ‘Income from House Property’?
Prior to FY 2019-20, if more than one self-occupied house property was owned by the taxpayer, only one was considered and treated as a self-occupied property and the remaining properties were assumed to be let out. The choice of which property to choose as self-occupied was left with the assessee.
However, From FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been extended to 2 houses. Now, a houseowner can claim his 2 properties as self-occupied and remaining house as let out for Income tax purposes.
Whether shops and offices can be considered as a ‘self occupied property’ for the purpose of exemption under the head “Income from House Property” is a matter of debate among professionals with no clear winner. Every Professional give his opinion as per his own interpretation of sections. This article is my personal interpretation w.r.t. whether shops/offices shall be included under the definition of self occupied property (hereby called SOP) or not?
First of all let us see whether shops/offices can be called a ‘House property’ or not.
As per the Income-tax Act, 1961 ‘House property’ means any building (or land adjacent to such building) owned by assessee himself. House property includes flats, shops, office space, factory sheds, commercial building, agricultural land and farm houses etc.
From the above definition, it is clear that shops and offices are covered under the gambit of House property.
Till here, there is no confusion. The section clearly says that shops and offices are House property. However, the real question is whether they can be considered as a ‘SOP’ for the purpose of claiming exemption under the head “Income from House Property”.
As per my opinion, Self Occupied Property only includes “Residential Homes” and not shops and offices. Income Tax Act allows assessee to hold 2 SOPs with no deemed rent.
The intention of law in bringing this amendment (i.e. to give exemption to 2 SOPS from 1 SOP) is to provide relief to the assessees who has to maintain two houses, one for his immediate family and another for his parents (probably living in another town). Due to current socio-economic conditions, an individual may have to maintain two houses at two different locations, which could be attributable to his employment, children’s education, residence for parents, so on and so forth. Thus, this concept of deemed rent to levy tax on the notional income of second house property has been viewed as detrimental and unfavourable. Through this amendment, relief has been provided to these category of assessees.
But there exist another category of assessees who possess 1 residential house and 1 (or more) shops/offices and desires to exempt their 1 shop also along with 1 residential house from payment of notional rent aka deemed rent. From their viewpoint, Shops/Offices is covered under the definition of ‘Self Occupied Property’. This interpretation (in my opinion) is defying the inention of law. The intention of law was never to give any type of relief to shop/office owners through this amendment. It is hereby clarified that Shops and offices shall not be considered as SOPs in order to save notional rent.
Few Scenario based example-
1. Assessee has no owned residential house but has 1 shop lying vacant.
Ans – It does not matter whether assessee has 1 residential house or not. Deemed rent will be charged on the shop.
2. Assessee has 2 houses. He lives in one and another one is lying vacant.
Ans – No deemed rent will be charged in such case since 2 residential house are exempt from payment of notional/deemed rent. The fact that 1 house is lying vacant will not affect the exemption.
3. Assessee has 5 shops. In all these shops, assessee carries on his own business. No deemed rent will be charged since ‘House Property’ provisions are not attracted. If a shop is neither rented nor lying vacant, then it will not attract any deemed rent.
I have attached a 1 page summary (along with flowchart) from my personal notebook on the above topic. You can download the summary for your future reference.