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Can rental income be received in spouse

rahul (none) (91 Points)

28 January 2016

Hi,

There is a property, which is divided in 3 rooms (which have been interconnected) , each having seperate sale deed. So in essence there are 3 different properties.

The same (all the 3 rooms) have been let out to a single person. 2 rooms are in the name of wife and 1 room is in the name of the husband.

The question is:
Can the whole rent (for all the 3 rooms) be received in wife's bank account ? (Ignore TDS for both.)

It is clear that the rent from the respective properties will go in respective returns.
Just wanted to know that will the ITO have any issue if wife recieves spouse's income even though the returns are filed as per tax laws ?

Regards

Rahul

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2 Replies

CA Hariprasad Nayak (Chartered Accountant) (221 Points)
Replied 28 January 2016

Hi Rahul,

I presume the sale deeds for the 3 properties which is let out currently to single tenant are in the name of 2 different persons, who are husband and wife in the current case. I also presume that husband has not transferred two rooms to his wife for inadequate consideration, in which case he will be hit by section 27 of the Act and shall be assessable for entire rental amount from the property as a ‘deemed owner’. Furthermore, clubbing provisions u/s 64(iv) will get attracted in that case and entire income shall gets taxed in the hands of the husband.

Assuming that current case is not hit by S. 64(iv), since the property is registered in the name of different persons they become 'owners' for the respective shares and they shall be considered as 'co-owners' u/s 26. Their respective share in the property shall be taxable in their individual hands.

As regards receipt of the entire rental in the hands of the wife, it will surely arouse suspicion in the minds of the AO as to whether there has been any shift in income to avoid higher slab rates of tax. However, this argument of the AO may not hold good if both husband and wife were in the same slab rate before adding rental income, as there is no scope for the any tax benefit. It is essential to satisfy the AO that there has not been any motive to evade taxes in such case.

The best bet to handle this situation is to receive the respective share in the bank account of both and giving out a gift to wife- which is exempt under the current law.

Hope the above clarifies.

Regards,

CA Hariprasad Nayak

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rahul (none) (91 Points)
Replied 29 January 2016

Thank you Mr. Hariprasad for the quick and detailed explanation.

Yes il ask the tenant to make seperate payments for no confusion if single payment can arise suspicion.
Rahul