Treatment of Renting of Villa

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This discussion addresses how to declare rental income from a villa jointly owned by Mr. and Mrs. A, but built solely by Mr. A. The villa is to be rented out as a proprietorship business, similar to hotel bookings with additional charges for food. Experts advise that rental income differs from business income. If Mrs. A obtains consent from her husband, she can declare the business income solely under her name. The property's value doesn't need to be bifurcated in individual Income Tax Returns (ITRs) unless Schedule AL applies, and capital gains will be calculated equally upon sale, reflected in both PANs via AIS reporting.

Suraj

Suraj (Querist)

06 January 2025 Dear Sir / Madam,
My query is as follows:

Mr A has built a villa having 6 Rooms, Kitchen, Swimming Pool, Gym on the outskirts of Mumbai. Mr A and Mrs A are the owners whereas the entire contribution to build the Villa came from Mr A. Mrs A is there for namesake.

Now Mrs A wants to rent it out to the people either through the services of MakemyTrip etc or through direct enquiries, by starting the proprietorship business.

How to treat this rental income for Mr A and Mrs A?

Kindly Guide.
Thanks & regards,
Suraj

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

06 January 2025 Advisable to divide the rent equally, & declare it in both ITRs.

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Suraj

Suraj (Querist)

06 January 2025 Sir,

1) can't we show it as a business income of Mrs A? as the rent won't be regular one. It is typical like hotel room charges whenever the guests turn up. The food will be cooked there for the guests. The separate charges for food will be taken. The expenses can be claimed.
2) How should we treat this property for Mr A?

Please guide.
Regards
Suraj

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

06 January 2025 Rent income is different than business income. If she gets NOC from her husband to start business in the villa, she can declare the business income all by herself.

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Suraj

Suraj (Querist)

06 January 2025 Thank you sir,
But how to show this Villa in their Individual returns? For example, total value of the villa is say 50 lakhs. Then in Mrs A's financials, would it be Fixed asset shown at Rs. 25 lakhs and in Mr A's ITR as SOP with 50% share? I am bit confused.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

06 January 2025 No need to bifurcate the investment in individual ITRs. Let it remain as per actual investment. Such details are not required in ITRs, unless in schedule AL..

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Suraj

Suraj (Querist)

07 January 2025 Yes Rambhia sir, schedule AL is applicable to both of them. But wont it create a problem if they plan to sell this Villa say after 5-6 years and not shown in their respective ITR?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

07 January 2025 No, while selling the villa, capital gain will be calculated in both files equally, in view of TDS deductions and agreement to be signed by both; resulting AIS reporting in both PANs.

Suraj

Suraj (Querist)

07 January 2025 Thanks Sir.... for your replies and your patience to reply too!!!

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

07 January 2025 You are welcome.

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