Tax question
This query is : Resolved
Guest
Guest
(Querist)
24 January 2013
Hi,
Our building is going under reconstruction and we are going to get 20,000 pm as rent for shifting until the new building is ready.
My queries are
1 Whether the amount received by us will be taxable???
2 If not taxable in my grand fathers hand since the flat is on my grand father name. One of his grand son ie my cousin brother has two flats an if we shift in my cousin's flat and pay him rent than he will be taxed for the rent received. Can the amout of rent money be given by my grand father as gift to my cousin to avoid tax??? how much money can be given as gift without being taxable .....
I am registered for CPT hence not aware of Income tax properly.
Please help and thanks in advance
Our building is going under reconstruction and we are going to get 20,000 pm as rent for shifting until the new building is ready.
My queries are
1 Whether the amount received by us will be taxable???
2 If not taxable in my grand fathers hand since the flat is on my grand father name. One of his grand son ie my cousin brother has two flats an if we shift in my cousin's flat and pay him rent than he will be taxed for the rent received. Can the amout of rent money be given by my grand father as gift to my cousin to avoid tax??? how much money can be given as gift without being taxable .....
I am registered for CPT hence not aware of Income tax properly.
Please help and thanks in advance
24 January 2013
Hi,
Rs. 20,000 pm received by your grand father is not subject to tax since it is compensation for alternate accomodation and not income. its a Capital Reciept.
However, If you pay rent to your cosion, it will be taxable in his hands as Income from House Property subject to Deductions u/s 24.
Rs. 20,000 pm received by your grand father is not subject to tax since it is compensation for alternate accomodation and not income. its a Capital Reciept.
However, If you pay rent to your cosion, it will be taxable in his hands as Income from House Property subject to Deductions u/s 24.
Guest
Guest
(Querist)
24 January 2013
Thanks Sir for clearing my query but my second question is if instead of paying rent to my cousin grand father gives money as gift to my cousin than will the gift be taxable and if not taxable than upto what limit???
24 January 2013
Gifts received from relatives are not taxable. Hence, gift received by your cousin is not taxable.
However,If you are staying at His Flat and instead of paying rent, you are giving money as gift, then he will be requird to pay tax on Income from House Property (under deeming provision)
However,If you are staying at His Flat and instead of paying rent, you are giving money as gift, then he will be requird to pay tax on Income from House Property (under deeming provision)
Guest
Guest
(Querist)
24 January 2013
Thanks Sir for your answer. But we will stay in my cousins house and the gift will be given by my grand father who stays with my cousin and not with us. Will the Income tax people be able to find any nexus between the gift from my grand father and we staying in our cousins house?? My cousin has 2 house in his name in one he stays and other is vacant?? will he be taxed notionally or 1 extra house is exempt
24 January 2013
Dear Author,
The Amount received by You is Taxable in Your Grand Father hand only.
It Doesnt Amounts to Capital receipt.
Since Already Your Cousin Have Two Flates,Either You Pay Rent or Gift Whatever be, The Deemed Provision Will Comes in Existance and rent is Taxable as deemed Provison.
The Amount received by You is Taxable in Your Grand Father hand only.
It Doesnt Amounts to Capital receipt.
Since Already Your Cousin Have Two Flates,Either You Pay Rent or Gift Whatever be, The Deemed Provision Will Comes in Existance and rent is Taxable as deemed Provison.
Guest
Guest
(Querist)
24 January 2013
But Rent that my grand father received is for shifting till the new building is ready. What if the builder had given us accommodation till the new building is ready. Is there any exemption from notional income provision he has 2 flats in one he stays and one is vacant where we will shift?
24 January 2013
if builder gives you accomodation then nothing is taxable....but if he pays you 20000 per month then all amont is taxable..
Guest
Guest
(Querist)
24 January 2013
How does it make difference whether he pays us or gives us accommodation. We are not earning anything what he will pay us we will pay to someone else for accommodation. But if my cousin has 2 house and 1 is vacant that we use it or not he will be taxed? is there any way to legally avoid tax?
26 July 2025
You're raising a very common and important query regarding **taxation of rent received as displacement compensation**, **deemed income from house property**, and **gift tax**. Let’s walk through this point by point and clarify the issues **legally and practically**:
---
### 🔹 1. **Is ₹20,000 per month paid by the builder taxable in the hands of your grandfather?**
Yes, **this amount is generally taxable**, despite the fact that it is for alternate accommodation.
* **Why?** Because **there’s no specific exemption** for such monthly compensation in the Income Tax Act.
* It is **not a capital receipt** unless it can be clearly proved to be **linked to loss of asset or right** — which is rare unless received as a **one-time compensation**, not monthly.
* The ₹20,000 monthly **is treated as a revenue receipt**, hence taxable under **"Income from Other Sources"** in your grandfather’s hands.
🔸 **Exception:** If the agreement clearly calls it a **reimbursement** for actual rent paid (and supported by documents), it may not be taxed. But usually it is **taxed unless proven otherwise**.
---
### 🔹 2. **What happens if you shift into your cousin’s second flat?**
If your cousin owns **two flats**, then:
* He can treat **one as self-occupied** and
* The **second will be deemed to be let out**, even if it's vacant (as per **Section 23(1)(a)**).
💡 **Result:** Your cousin will be **taxed on notional rent** (i.e., expected rent) of the **second property**.
---
### 🔹 3. **Can your grandfather give your cousin a “gift” instead of rent?**
Yes, legally your **grandfather can gift any amount to your cousin**, as **they are relatives** under the Income Tax Act. **Gifts from relatives are exempt from tax** (Section 56(2)(x)).
BUT...
* If you live in the **same flat** for which the gift is given (instead of paying rent), it may **invite scrutiny**.
* IT Dept may argue that this is a **colorable device** to avoid tax, and could **invoke deeming provisions**.
💬 **Key Point:** Even if gift is genuine, your cousin **will still be taxed** on **deemed rental income** from the vacant flat (2nd house), regardless of who lives there or who pays what.
---
### 🔹 4. **Can your cousin avoid tax on notional rent for the second house?**
Under current law (as of FY 2024-25), **no** — unless:
1. The second house is **let out** (even at a low rent), actual rent will be taxed.
2. Or the second house is used for **commercial purposes** (not applicable here).
3. He opts for **new tax regime**, which **disallows house property loss set-off** — but still doesn’t eliminate notional rent.
📌 So **one of the two houses will always be taxed** (on actual or deemed basis).
---
### ✅ Final Summary
| Situation | Taxable? | Remarks |
| ------------------------------------------------- | ----------------------- | -------------------------------------------------------------------- |
| ₹20,000 received by your grandfather from builder | ✅ Yes | Treated as revenue income unless proven as reimbursement |
| Staying in cousin’s second (vacant) flat | ✅ Yes (for cousin) | Deemed rent taxable on second house |
| Grandfather gifting ₹ to cousin (instead of rent) | ❌ Not taxable | Gift from relative is exempt, but cousin still faces deemed rent tax |
| Avoiding notional rent tax on second flat | ❌ Not legally avoidable | Unless second flat is let out or used for business |
---
### ✅ Suggestions (Legal and Efficient)
* Your cousin can **officially let out** the flat to your grandfather with **formal rent agreement** and **charge nominal rent** (e.g. ₹5,000). He’ll pay tax on that amount, but **can claim 30% standard deduction u/s 24**.
* Your grandfather can **claim rent paid** (if any) as **housing expense**, but no deduction is allowed unless he gets HRA.
* Do not try to bypass tax by informal gifts unless there's **clear purpose and distance** from rent arrangements.
Let me know if you want:
* A draft rent agreement
* A capital gain computation or exemption structure
* A tax calculation template for your grandfather or cousin
I'm happy to help!
---
### 🔹 1. **Is ₹20,000 per month paid by the builder taxable in the hands of your grandfather?**
Yes, **this amount is generally taxable**, despite the fact that it is for alternate accommodation.
* **Why?** Because **there’s no specific exemption** for such monthly compensation in the Income Tax Act.
* It is **not a capital receipt** unless it can be clearly proved to be **linked to loss of asset or right** — which is rare unless received as a **one-time compensation**, not monthly.
* The ₹20,000 monthly **is treated as a revenue receipt**, hence taxable under **"Income from Other Sources"** in your grandfather’s hands.
🔸 **Exception:** If the agreement clearly calls it a **reimbursement** for actual rent paid (and supported by documents), it may not be taxed. But usually it is **taxed unless proven otherwise**.
---
### 🔹 2. **What happens if you shift into your cousin’s second flat?**
If your cousin owns **two flats**, then:
* He can treat **one as self-occupied** and
* The **second will be deemed to be let out**, even if it's vacant (as per **Section 23(1)(a)**).
💡 **Result:** Your cousin will be **taxed on notional rent** (i.e., expected rent) of the **second property**.
---
### 🔹 3. **Can your grandfather give your cousin a “gift” instead of rent?**
Yes, legally your **grandfather can gift any amount to your cousin**, as **they are relatives** under the Income Tax Act. **Gifts from relatives are exempt from tax** (Section 56(2)(x)).
BUT...
* If you live in the **same flat** for which the gift is given (instead of paying rent), it may **invite scrutiny**.
* IT Dept may argue that this is a **colorable device** to avoid tax, and could **invoke deeming provisions**.
💬 **Key Point:** Even if gift is genuine, your cousin **will still be taxed** on **deemed rental income** from the vacant flat (2nd house), regardless of who lives there or who pays what.
---
### 🔹 4. **Can your cousin avoid tax on notional rent for the second house?**
Under current law (as of FY 2024-25), **no** — unless:
1. The second house is **let out** (even at a low rent), actual rent will be taxed.
2. Or the second house is used for **commercial purposes** (not applicable here).
3. He opts for **new tax regime**, which **disallows house property loss set-off** — but still doesn’t eliminate notional rent.
📌 So **one of the two houses will always be taxed** (on actual or deemed basis).
---
### ✅ Final Summary
| Situation | Taxable? | Remarks |
| ------------------------------------------------- | ----------------------- | -------------------------------------------------------------------- |
| ₹20,000 received by your grandfather from builder | ✅ Yes | Treated as revenue income unless proven as reimbursement |
| Staying in cousin’s second (vacant) flat | ✅ Yes (for cousin) | Deemed rent taxable on second house |
| Grandfather gifting ₹ to cousin (instead of rent) | ❌ Not taxable | Gift from relative is exempt, but cousin still faces deemed rent tax |
| Avoiding notional rent tax on second flat | ❌ Not legally avoidable | Unless second flat is let out or used for business |
---
### ✅ Suggestions (Legal and Efficient)
* Your cousin can **officially let out** the flat to your grandfather with **formal rent agreement** and **charge nominal rent** (e.g. ₹5,000). He’ll pay tax on that amount, but **can claim 30% standard deduction u/s 24**.
* Your grandfather can **claim rent paid** (if any) as **housing expense**, but no deduction is allowed unless he gets HRA.
* Do not try to bypass tax by informal gifts unless there's **clear purpose and distance** from rent arrangements.
Let me know if you want:
* A draft rent agreement
* A capital gain computation or exemption structure
* A tax calculation template for your grandfather or cousin
I'm happy to help!
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