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How to do tax planning?

akanksha (CA Final Student) (325 Points)

29 May 2014

Mr. A is a salaried person having annual salary of Rs 1200000.00

He has a house property registered in his name in which he is residing. Recently he has taken loan of Rs 1200000.00 on this property to construct a new floor and claim interest on this loan under house property to reduce his tax liability.

Now since a new floor is constructed he wants to give the ground floor on a monthly rent of Rs 12000.00

But if he will take this 12000 per month as his income then he will not get the benefit of interest since his rental income will set off his interest.

Please suggest a tax planning by which rental income is taxable in other person hands and Mr A can claim interest.

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9 Replies

Mihir (Wealth Manager) (5293 Points)
Replied 29 May 2014

The interest on loan can be claimed as deduction u/s 24 as home improvement of upto Rs. 50,000/-. He may further claim deduction of 30% from rental income.

Since the property is in his own name, rental income will be his own income.

Wait for more replies.

akanksha (CA Final Student) (325 Points)
Replied 29 May 2014

He will not get full interest of Rs 120000 deduction? limit is 150000

akanksha (CA Final Student) (325 Points)
Replied 30 May 2014

please reply.......................................

akanksha (CA Final Student) (325 Points)
Replied 30 May 2014

please reply.......................................

akanksha (CA Final Student) (325 Points)
Replied 30 May 2014

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Mihir (Wealth Manager) (5293 Points)
Replied 30 May 2014

There will be difference of opinion here. I think constructing additional floor would amount to home improvements whereas others might say it is acquiring a new residential property. Answer would probably lie in the details. If it is indeed acquiring new property, then Rs. 150,000/- can be claimed as deduction.

Rajagopalakrishnan R (PARTNER) (1422 Points)
Replied 30 May 2014

If the property i.e additional floor is let out , the entire interest is deductible as it is not self occupied. The idea would be to give the floor on rental to some one close ( say brother) at a nominal rent and claim the entire interest as deduction.

Nikhil Kaushik (Fellow CA) (85362 Points)
Replied 31 May 2014

Construction of an additional floor should get covered as addition to asset instead of improvement.

Once you let out part of the house, the interest liability shall be allowed as deduction without any limit.

Though I don't understand how you wish to say that he/she wont get the benefit of deduction if the house is let out as interest would be set off against rent income!!! at the end of the day, you get additional income without additional tax liability!!!

akanksha (CA Final Student) (325 Points)
Replied 31 May 2014

Nikhil Kaushik Sir, I want to say that the assessee wants to reduce his tax liability by way of claiming deduction of Rs 120000.00 as interest in House Property as Self occupied . Currently he is paying income tax of about Rs 200000.00 The Expected Rent of ground Floor is 12000.00. So his total income will increase by about Rs 140000 00 Now my question is to suggest a tax planning by which his overall income tax liability is reduced and also he can earn the rental income? Any Suggestion by way of gifting the property or anything else Please suggest