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Income - assured return on under construction property

yash (pm) (30 Points)

27 November 2014

Dear All,
Need your expert advise...

Brougth one property under consutruction for my Married daugther with help of her Husband too.
60% of payment done by me and 40% payment done by his husband.

My daugther is house wife... .. Under Assured return, there will payment of 4.5 lacs / ann after TDS done by builder. Propoert is name of my daugther.. ( 100% - single owner)

Few query....
1. This will be treated as income (Intrest Income) for my dougther ?
2. If yes, What ITR form need to used to file return?

3. Or This Intrest Income will be added to my total income (as i did 60% payment)
4. Or will added to Her Husband income (40% paymnet done by him)

Best Regards...

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12 Replies

yash (pm) (30 Points)
Replied 28 November 2014

Dear All Subject Matter Experts ( Tax Gurus),
Please HELP me with your advise/experience...

Best Regards...

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 01 December 2014

the 4.5 lacs payment p.a. What type of payment is this? Can u pls elaborate it a little.

yash (pm) (30 Points)
Replied 01 December 2014

Any update? Waiting for your Help.. Please HELP...

yash (pm) (30 Points)
Replied 01 December 2014

Hi... Thanks Gridhar ji for your reply... 4.5 lac/ann is Assured Return given by Builder on under construction propoerty till possession ... It will be sort of Intrest income...

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 02 December 2014

Since the property is in your daughter's name so ultimately the income would get taxed in her hands only. You need to file ITR-1 for thsi purpose.

The other way round would be to put the name of yourself as also on the property, since I suppose that you are a senior citizen so you would get a higher exemption slab while taking the interest income in your income and your daughter being a women citizen would also get the benefit of higher tax slab.

Please communiacte with your lawyer and CA regrds the adding the name.

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yash (pm) (30 Points)
Replied 03 December 2014

Thanks Giridhar ji for your reply and advise...

Z ( ) (2960 Points)
Replied 03 December 2014

Having property on someones name is just a prima facie evidence as to the ownership, we primarliy have to see who has made the payment, since you have made the payment you are the owner of the property and consequently this income is actually yours . Although if shes a major then you can gift your share to your daughter and then she will be the owner to the extent of 60% (clubbing provisions shall not apply), remaining 40% share is of husband and even if he gives it to her then clubbing provisions shall apply and 40% of the income will have to be clubbed in his income in that case aswell. That mean to say in both the cases income to the extent of 40% is attributable to husband only

Further as per my understanding of S. 2(28A) which defines the meaning of the term interest, this assured return is not in nature of interest to you. Interest is in respect of money borrowed or debt incurred.

"interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised "

But this amount which you have paid is not a borrowing or debt. They are not going to repay you the loan/debt/borrowing. Neither they have taken it in the 1st place. They are just receiving the installments

Will it be possible for you to show us the agreement?

Further in my limited knowledge such a payment is not covered under TDS provisions. But I know from the offers I read that tax is being deducted at source but they are prolly doing it to be on safe side lest they could be in trouble(if tax was required to be deducted)

Further check for the agreement with the seller in respect to the assured return, as to who is going to receive this income. Since the TDS certificate will also be in their name so in case of claiming the TDS & getting TDS refund(if any) you can face some problems. Her husband should make a declaration that he should be entitled to 40% of the asssured return so there is no issues while claiming the refund or deduction of tax in the ITR, Similarly it should also be declared that only 60% of the assured return accrues to you/your daughter (depending upon your course of action) so the entire TDS certificate not be in her sole name

yash (pm) (30 Points)
Replied 03 December 2014

Thanks Z for detail explaination....

Let me try to add my understanding....

Assured return is not in nature of interest: As per defination you are correct.. However, builder is saying he will provide (10%) TDS certificate mentioning as Intrest Income..

I will try to attach the agreement if i get soft copy/photo copy.

As per my dicussion with builder, TDS certificate will also in name of my daugther only.

Best Reagrds

Z ( ) (2960 Points)
Replied 03 December 2014

But as far as TDS certificate is concerned I request that you take necessary steps by giving a declaration of income to the builder. See rule 37BA in this regards

[Credit for tax deducted at source for the purposes of section 199.

37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.

(2) 27[(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee :

Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).]

(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.

(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.

(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.

(ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.

(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of—

(i)		the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority; and
(ii)		the information in the return of income in respect of the claim for the credit,

subject to verification in accordance with the risk management strategy formulated by the Board from time to time.]

Even if there is TDS then it should not be much of a problem as if assessee is liable to advance tax then he can claim it over there or if refund is admissible then refund can be granted. Or you could give certificate of no/lower deduction of tax u/s 197

Let them deduct it, they also want to be on safe side and till we have any judgement I think its fine being prudent.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 03 December 2014

Mr Z we need to go by the definition as laid down in law which says that only the owner of house property is entitled to claim all the tax benefits and is assessed to tax from the income arising from house property.

since the property is in the name of me YAsh's daughter so shw alone would be entitled to claim the benefits and get assessed to income from HP.

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Z ( ) (2960 Points)
Replied 04 December 2014

I beg to differ, When assessment is done by AO they have to see who is the person who has actually finance the property. There have been so many case laws on this

I am not denying your view,please substantiate it for me

Further I would like to add Benami transactions in this

Benami transactions was very much prevalent in India, it is so even now,In such cases, the property is registered in someone elses name and is financed by someone else

Text from Benami Transactions (Prohibition) Act

S. 2"(a) benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person"

3. Prohibition of benami transactions- (1) No person shall enter into any benami transaction.

(2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name
of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife of the unmarried daughter.

(3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence
under this section shall be non-cognizable and bailable.

Further I would like to add that such under-construction properties are outside the perview of chapter of income from house property

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