Clubbing of income - Rental Income

Tax queries 260 views 8 replies

Arvind

Other

30 Points Joined November 2020

Dear Gurus,

My father gifted me a land (in Tamil Nadu) and I constructed a building & left it on commercial rent. I’m planning to add my wife’s name as a co-owner to the property through a “settlement deed/agreement” in lieu of using her money/gift (her salary income, jewelry and her father’s monetary gift) for my purpose. I want the rental income on the property to be shared between me and wife without the clubbing of income provision getting applied. For this:

Is the settlement agreement, the right one to use?
Should the agreement show the consideration that I received/used from my wife to be eligible for non-clubbing of income?
If yes, should the amount be in-line with the 50% of the registration department's value of the property?
Any thing else to be taken care of in the process/agreement to ensure clubbing of income doesn’t happen?

Thanks for your valuable advice.

Replies (8)

veerendar singh

tax consultant

3306 Points Joined October 2018

Clubbing would not attract as your wife is jointly owning the property against a past consideration.

Chhatra Singh Dugar

1464 Points Joined June 2017

In order to avoid clubbing provision u/s 64 of Income tax you need to transfer your ownership rights in the land in proportion of the rent you want your wife to share with you. If you want 50% of rent to be received by her, then consideration should be 50% of fair market value or circle rate whichever is higher.

The transfer of land should be through registered Sale Deed and on duly paid stamp papers.

Keep it mind that whole consideration paid from her own resources.

I think no clubbing provision would be attracted then.

Arvind

Other

30 Points Joined November 2020

Thank you for your response. Instead of a sale deed, can I go or a settlement deed to add her name with the consideration amount mentioned? Sale deed registration charges are higher than a settlement deed charges.

Arvind

Other

30 Points Joined November 2020

veerendar singh

tax consultant

3306 Points Joined October 2018

There is absolutely no need of registering your sale deed or settlement deed. also there is no compulsion to pay stamp duties. just make an agreement and sign it. this shall be enough.

Arvind

Other

30 Points Joined November 2020

Dear Mr.Veerender,

Pardon my ignorance: for a property, if a sale/settlement deed is not registered, would my wife be considered a legal owner? Currently, I'm the only owner.

In some threads I see that a mutual agreement is enough and some say the agreement has to be registered. Little confused here.

Thank you for helping out!

veerendar singh

tax consultant

3306 Points Joined October 2018

Its completely your choice. you may opt to not register your deed. the consequence would be that courts would not accept your unregistered deed in case of any dispute between you and your wife. registration usually becomes necessary when you deal with strangers. when you deal with family members you have trust and expect that no dispute would arise. the law of contracts requires that parties must pay consideration. it does not mandate its registeration. through a valid contract your wife shall become a legal owner.

Arvind

Other

30 Points Joined November 2020

Thank you Mr.Veerendar.

Though court may not accept an unregistered deed during disputes, Income Tax department would consider an unregistered deed for avoiding clubbing of income (in case of a query from IT). Is that right?

Thanks again.