Tax on rental income
This query is : Resolved
21 March 2011
I own 2 flats in Pune.One is self occupied and I have a housing loan on it and another flat is "loan free" now, since I repaid the outstanding loan amount this year.
I have rented this "loan free" property and I wanted to know how I can save paying tax on the rent I recieve from it.
Two options I thought of:
1. Gift the flat to my HUF, and recieve the rent as a income for the HUF, so it will not be taxed till a particular tax slab.
2.Lease the flat to one of my parents (senior citizens) for a nominal amount of say 1 rupee and then they sub-lease (rent) it to out.So the amount will be taxable under their income and also be below the taxable limit.
Could you please advise, which of these ia legally viable.
Also if you can suggest any other ways to treat the rental income different from my salaried income.
Regards,
Sidd
I have rented this "loan free" property and I wanted to know how I can save paying tax on the rent I recieve from it.
Two options I thought of:
1. Gift the flat to my HUF, and recieve the rent as a income for the HUF, so it will not be taxed till a particular tax slab.
2.Lease the flat to one of my parents (senior citizens) for a nominal amount of say 1 rupee and then they sub-lease (rent) it to out.So the amount will be taxable under their income and also be below the taxable limit.
Could you please advise, which of these ia legally viable.
Also if you can suggest any other ways to treat the rental income different from my salaried income.
Regards,
Sidd
22 March 2011
Dear Sidd,
If you gift the flat to the HUF, the rent income will be clubbed in your hands u/s. 64(2). So the income will again be taxed as if it is your income and not as income of HUF.
The second option is legally viable. However, for your parents, the income will not be treated as Income from House Property, but it will be Income from Other Sources. This means, they will be able to claim only actual expenses against the rent income as against standard deduction from House Property Income. However, for the sake of creating substance, you may show the nominal rent at some reasonable amount instead of just Re. 1.
Also, from the facts you have given, I think you would have a loss from the first property which is self-occupied because of the interest on housing loan. If the same is a substantial amount, you can off-set the same against the income of the rented property rather than transferring the income to anyone else. This option will depend on the amount of rental income and salary income for you.
If you gift the flat to the HUF, the rent income will be clubbed in your hands u/s. 64(2). So the income will again be taxed as if it is your income and not as income of HUF.
The second option is legally viable. However, for your parents, the income will not be treated as Income from House Property, but it will be Income from Other Sources. This means, they will be able to claim only actual expenses against the rent income as against standard deduction from House Property Income. However, for the sake of creating substance, you may show the nominal rent at some reasonable amount instead of just Re. 1.
Also, from the facts you have given, I think you would have a loss from the first property which is self-occupied because of the interest on housing loan. If the same is a substantial amount, you can off-set the same against the income of the rented property rather than transferring the income to anyone else. This option will depend on the amount of rental income and salary income for you.
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22 March 2011
Thanks a lot Namrata for your quick reply...
So forming HUF is out of question.
As for the lease option, since my mother is a senior citizen, and has no income, even if there is no standard deduction, the income from the rent would be below taxable limits.
This sounds promising.
As for the loss from first property, it is not a substantial amount after the deduction of 1.5 lacs.So I will end up paying more tax on it.
Once again many thanks for clearing my confusion about HUF.
So forming HUF is out of question.
As for the lease option, since my mother is a senior citizen, and has no income, even if there is no standard deduction, the income from the rent would be below taxable limits.
This sounds promising.
As for the loss from first property, it is not a substantial amount after the deduction of 1.5 lacs.So I will end up paying more tax on it.
Once again many thanks for clearing my confusion about HUF.
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