How is Tax levied on Rent from Vacant Land?

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Many a times people earn income by letting out their vacant land. It could be monthly rental income or a one time income by letting it out for an event or it could be any other way in which some income is earned.

When such an income is earned people usually get confused on how and under which head such income should be taxed. The confusion is usually between ‘Income from House Property’ or ‘Income from Other Sources’.

To understand in which head it should be taxed let’s see which type of income is taxed under each head.

Income from House Property

The law states that any income earned from renting out a building and the land appurtenant thereto shall be taxable under the head Income from House Property.

It means that any income earned from renting out any building be it commercial building or residential building or any other building, including the land attached to the building is taxable under the Income from House Property.

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The word land appurtenant is clearly mentioned in the law which specifically defines that it is the land that is attached to the building such as lawn, vacant area etc outside a building.

A vacant land with no construction on it will not be considered as a land appurtenant. Only land attached to a building would be considered as Land appurtenant thereto.

Therefore Income earned from Vacant Land on which there is no construction shall not be taxable under the head Income from House Property.

Income from Other Sources

As the name suggests, all those incomes which are not included under any other head of income are reported under head Income from Other Sources.

The other heads of income are

  • Income from Salary;
  • Income from House Property;
  • Income from Capital gains, and
  • Income from Business and Profession

Any income not reported under any of the above 4 heads would be taxed under head Income from Other Sources.

Since, rental income from letting out vacant land does not fall into any of the above 4 categories, income earned from renting of vacant land would be taxed under head Income from Other Sources.

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Other Relevant Points regarding Tax on Rent earned from Vacant Land

  1. TDS on Rent paid for use of Vacant Land would be deducted @ 10% under Section 194I if the amount paid is more than Rs. 1.8 Lakhs.
  2. The final tax would be levied as per the Income Tax Slab Rates of the person receiving the Rent.
  3. As Rent from Vacant Land is disclosed under “Income from Other Sources” and not under “Income from House Property”, the benefit of Standard Deduction from House Property would not be allowed. However, if the person receiving the Rent has incurred any expense on the land, he can claim the actual amount as an expense under head Income from Other Sources.
  4. GST on Rent @ 18% also be applicable on the rent received from Vacant Land.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.