When the total amount i.e. rent of the building along with the hire charges for other assets such as furniture or service charges for certain services such as security, lift, etc. is received by the owner of the building; such amount so received is defined as Composite Rent.

Tax Treatment of Composite Rent:

The taxability of Composite Rent can be well understandable by considering Two cases mentioned below:

Case1: Where total amount are inseparable

Where composite rent consists of rent for the building & hire charges for other assets & the two rents are inseparable, then the entire amount is chargeable under the “Business Income” or “Other Sources”, as case may be.

Case2: Where total amount are separable

• Where composite rent consists of rent for the building & hire charges for other assets & the two rents are separable, then rent of the building is taxable under the head “Income from House Property” whereas hire charges of other assets is charged to tax under “Other Sources”.

• Also, if the composite rent is the mixture of rent of the building & also includes service charges for some services, then the total amount is spilt into rent & service charges. Rent gets taxable under “House-Property” & Service charges under “Business Income.”

The above taxability is explained below by an example illustrated below –

Illustration:

Mr. Ankit owns a commercial complex at Mumbai. He is in the business of letting out the premises on rent. The income earned from House Property is Rs. 18, 00,000 including Lift maintenance of Rs. 1, 50,000 & car facility of Rs. 60,000. Interest on loan amounted to Rs. 1, 00,000.

Show the income taxable under respective heads separately.

Solution:

In the above case, the total amount can be easily separated.

Therefore, Service charges include car facility and maintenance of lift and thus Rs. 2, 10,000 is chargeable as “Business Income”.

Moreover, Interest on Loan amounted to Rs. 1, 00,000 is taxable under “Other Sources” & Rent earned of Rs. 15, 90,000 i.e. (Rs.18, 00,000 – Rs.2, 10,000) is chargeable under “House Property”.

In certain cases, the owner charges rent from the tenant not only on account of rent for the house property but also on account of service charges for various facilities provided with the house. Such rent is known as composite rent.

The said composite rent can fall under two categories:

• Composite rent on account of rent for the property and service charges for various facilities provided along with the house like lift, gas, water, electricity, air condition, etc.

• Composite rent on account of rent for the property and the hire charges of machinery, plant or furniture belonging to the owner.