Composite rental income
Rent received for letting out plant, machinery or furniture together with a building — taxed under income from other sources, as a separate line from renting the equipment alone.
In plain language
Renting out a factory shed along with its machinery is not the same, for tax purposes, as renting out the machinery on its own. The workbook lists both as separate line items under income from other sources.
Composite rental income is the rent from letting out plant, machinery, furniture and a building together. Plain rental income from just the plant, machinery or furniture alone — without a building — is listed as a distinct line above it in the same computation. Both are taxed under income from other sources, but only if they are not already chargeable as business income.
How it works
The workbook's computation table for income from other sources lists, among its named categories:
- Item 5 — rental income of machinery, plant or furniture (alone).
- Item 6 — composite rental income from letting out plant, machinery, furniture and building together.
Both carry the same qualifier: they land under "income from other sources" only if the income is not chargeable under "profits and gains of business or profession" — a landlord in the business of letting out such assets would instead be taxed under that head.
From this composite figure, the same computation allows a deduction for attributable expenses before arriving at the taxable amount under this head.
A worked example
Illustrative figures.
Mr Chatterjee owns a small factory unit — the building, along with the plant and machinery installed in it — and lets the whole thing out to a manufacturer for Rs 8,00,000 a year. He is not in the business of letting property; this is his only such arrangement.
Because the building and the machinery are let out together, the Rs 8,00,000 is composite rental income, taxed under income from other sources. After deducting Rs 60,000 of attributable expenses — repairs and insurance on the machinery — his taxable income under this head is Rs 7,40,000.
Had he instead let out only the machinery, with the building let separately (or not let at all), that machinery rent alone would fall under the plain "rental income of machinery, plant or furniture" line — the same head, but a different line item in the computation.
Why NISM asks about it
Chapter 9 (Income from Other Sources), section 9.1, lists composite rental income as a distinct line in the computation table for income taxable under this head. Expect a question distinguishing it from plain machinery/furniture rental, and testing that both fall outside this head if they are already business income.
Common exam traps
- "Composite" means building plus plant/machinery/furniture let together — not rent from two unrelated properties.
- Only taxed here if not already business income — a person in the business of hiring out such assets is taxed under profits and gains of business or profession instead.
- Attributable expenses are deducted before arriving at taxable income under this head, the same as for other items in the computation.
- Distinguish from ordinary house-property rent, which is a separate head altogether (income from house property), not income from other sources.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Annual valueThe notional rental value on which income from house property is taxed — nil for self-occupied property, reasonable expected rent for deemed let-out, and the higher of that or actual rent if let out.
- Collection chargesA deduction allowed against gross interest from securities when computing taxable income from other sources, alongside interest on borrowed money and other expenses incurred to earn that income.
- Deemed let-out propertyA house property that is not actually let out but is taxed as if it were, on its reasonable expected rent, because the owner has already chosen two other houses as self-occupied.