No Notional Income for House Property held as Stock-in-Trade [Section 23(5)]

Under Section 23(5) of the Income Tax Act, 1961, a key exemption applies to real estate developers and builders who hold properties as stock-in-trade (inventory for business purposes). This provision ensures that such properties are not subjected to notional rental income taxation for a specified period.

Key Provisions of Section 23(5)

1. Applicability
   • Applies to buildings and land appurtenantheld as stock-in-trade (i.e., properties meant for sale in the ordinary course of business).
   • If the property (or part of it) remains unlet(not rented out) during the financial year, its Annual Value is considered Nil.
2. Exemption Period
   • The Nil Annual Value benefitis available for up to 1 year from the end of the financial year in which the Completion Certificate is obtained from the competent authority.
   • Example:If construction is completed in FY 2024-25 (certificate obtained by March 31, 2025), the exemption applies until March 31, 2026.
3. Objective
   • Prevents double taxation(since unsold inventory is already subject to business income tax upon sale).
   • Recognizes the business natureof real estate developers, who hold properties for sale rather than rental income.
4. Conditions
   • The property must be classified as stock-in-tradein the books of accounts.
   • The exemption does not applyif the property is let out (rented) during the year.

Impact & Practical Implications

✅ Tax Relief for Builders: No deemed rental income is charged on unsold inventory for the specified period.

✅ Avoids Notional Taxation: Unlike other vacant properties (deemed let-out), developers are exempt from paying tax on hypothetical rent.

⚠ Post-Exemption Period: After 1 year from the completion certificate, if the property remains unsold and vacant, it may be treated as a deemed let-out property, attracting notional rent taxation .

Comparison with Regular House Property Taxation