Cash consideration in installments in lieu of share in house

Tax queries 478 views 3 replies

cucko

Accountant

54 Points Joined November 2008

We are two brothers who have inherited an intestate house in Delhi from our father. We both brothers are senior citizens. Though we are paying property tax on the said house, we have not yet applied for mutation to be done in our names in MCD. Neither of us brothers are presently living in it permanently. My brother wants to buy out my share in the house at a mutually agreed price, but cannot pay the agreed price lump sum. He wants to pay the agreed price in monthly installments over some years and may be after some years pay the balance installment in lump sum. Will the monthly installments received by me be taxable under the Income Tax Act? Will I get exemption u/s 56? If not what is the alternative to get the exemption? Again, how should the agreement be drafted that in case of my demise my family members continue to get the unfinished installments from my brother or his family members?

Replies (3)

CA Neil Ganatra

Partner - Gautam Joshi & Co.

871 Points Joined February 2009

Dear Sir,

What I have understood is you will transfer your right by way of an agreement with your brother currently. However you will get the money in installment in few years or in lumpsum after few years. According to me the price agreed upon by both of you for your share will be considered as consideration for transfer in this year only and will be taxable in this year only. There is some possibility of avoiding this for which you need to make agreement in some specific manner.

Thanks

cucko

Accountant

54 Points Joined November 2008

Mr. Ganatra, the agreement would be transfer of my rights in the house after final installment has been paid whenever that is. If I make for transfer of rights immediately then I will be ruined by the whopping income tax. Further, I need to protect myself of the headache of running to courts for non-fullfilment of agreement in case my brother defaults who is an NRI. In such a case can I get any exemption u/s 56?

Nikhil Kaushik

Fellow CA

86871 Points Joined June 2009

Mr Cucko,

if the transfer of the rights is to take place after the final instalment has been paid, you may do the following:1.

1. in your personal balance-sheet, show the amount received as advance against sale of property.

2. In case the instalments are parked in Fixed deposits, offer the interest income to tax.

3. upon execution of the transfer agreement, claim exemptions available under section 54. Section 56 is for other incomes.

A point of caution, it would be better if you could take a written advice of a chartered accountant before firming up your view on this. Advices on social websites won't help you much incase tax authorities decide to tax the income in the current year (though it can still be avoided though through certain different arguments)

Regards

Nikhil Kaushik

+ 91 - 9699 814 106.