Clarification required

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Student

57 Points Posted on 05 April 2014

Hi Team,

Please confirm..

Here is A (Father), B(Son) and C(Daughter).

B has received 3 properties from A via Gift Deed.

Here B want to declare his father A as a caretaker of the all the 3 propertiesthrough POA.

B also want to declare that what ever Rent will come through all the 3 properties should be given to A as a salary as A he is acting as a caretakerof those properties.

A is responsible to give property on Rent, Collection of Rent and Maintenance of Properties. Where as B is taking responsibility of Paying Property Tax.

My Query here is does B is responsible to pay income tax on the Rent received from the all the 3 properties, Where as A is taking the rent as his income being a caretaker as mentioned in POA?

Thanks...

Replies (7)

Mihir

Wealth Manager

5358 Points Posted on 06 April 2014

If the 3 properties are gift to B by A, then B becomes the owner of the property and any income arising from the property shall be taxable for B and not A. B can give a POA to take care of the property, and may also pay a sum to B for providing the services. B shall be liable to tax on the rental income from the 3 properties.

Student

57 Points Posted on 06 April 2014

@ Mihir: Thanks for your reply...

Tell me what if I mention in POA that I will pay 90% of rent to A as a salary for providing service than also do i need to pay income tax on 100% of rent arising from the property or on the balance %age?

Mihir

Wealth Manager

5358 Points Posted on 06 April 2014

Rental income shall be taxed under income from house property and you may avail deduction upto 30% + actual property tax paid. Paying salary to A shall have no effect on the tax liability of B. This way, B will pay taxes on total rental income less 30% deduction, and A shall also pay taxes on the 90% of the rental received as salary. Both are paying taxes.

Student

57 Points Posted on 06 April 2014

You mean to say that If I pay 90% as salary..I can avail only 30% rebate on the same + tax paid on property. Which means I have to pay tax on 70% of rental income and A has to pay tax on 90% tax on salary?

What if I mention that 60% paid as salary and rest 30% taken deduction and rest 10% paid as rent? Can this be done?

If possible please share your phone number so that I can discuss the same over the call.

Mihir

Wealth Manager

5358 Points Posted on 06 April 2014

If B is receiving Rs. 100,000/- pa as rental income, and paying Rs. 10,000/- pa as property tax.

Income from house property for B shall be Rs. 63,000/- (Rental - tax - 30%)

If B is paying 90% of the rental to A, still B's tax liability shall remain the same at Rs. 63,000/- whereas A's tax liability shall on Rs. 90,000/- received as salary.

Student

57 Points Posted on 06 April 2014

@ mihir sir sorry to bother you...

What if B is earning 1,00,000/- p.a as rent and paying 10k as property tax (Balance left 90k)

Now out of 90k B is paying 63k to A as salary and left with 27k...Now how much tax B and A will have to pay on the above mentioned scenario?

Mihir

Wealth Manager

5358 Points Posted on 06 April 2014

Deduction u/s 24 cannot exceed 30% or Rs. 27,000/- on Net Annual Value of Rs. 90,000/- . Whatever amount of salary is paid, it is an expense for B on income earned and will be included in 30% deduction.

B shall pay tax on Rs. 63,000/- after 30% deduction.

And A shall be tax on salary income of Rs. 63,000/-