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Income from rented house property

Naishadh Sevalia (Associate Consultant) (32 Points)

24 December 2013

Hi,

I and my wife jointly own a flat which is rented out. So I believe the income from rent is also to be divided between us from income-tax point of view.

Is there a legal way by which I can declare that the whole rent income goes to my wife?

Thanks

NKS

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20 Replies

Dhruvi N suthar (Account Executive) (303 Points)
Replied 24 December 2013

Transfer the house in your wife's name..

However not only by way of paper Transfer...you can transfer by way of irrevocablr Transfer...

Naishadh Sevalia (Associate Consultant) (32 Points)
Replied 24 December 2013

Originally posted by : Dhruvi N suthar
	Transfer the house in your wife's name.. However not only by way of paper Transfer...you can transfer by way of irrevocablr Transfer...

Well house transfer is over kill solution for this topic.

Can I do something with the help of affidavit or say gift to wife etc.?

@VaibhavJ (Believe!! Live your dreams!) (33511 Points)
Replied 24 December 2013

Only in case where she is First Owner of the house & subject to other conditions as stated above by Dhruvi ji.

Thanks//VaibhavJ

Siddharth (Article Assistant) (111 Points)
Replied 24 December 2013

Gift is not a solution to the problem because in the income tax act there is provision of clubbing of income.

if you gift the property in the name of wife the clubbing will attracted in the hands of transferor because the gift is a transfer without the consideration & income of rent will be entirely clubbed in the hands of husband(transferor)

Dhruvi N suthar (Account Executive) (303 Points)
Replied 24 December 2013

Yes you can transfer with gift deed !!!

Gift deed

This document allows you to gift your assets or transfer ownership without any exchange of money. To gift immovable property, you just have to draft the document on a stamp paper, have it attested by two witnesses and register it. Registering a gift deed with the sub-registrar of assurances is mandatory as per Section 17 of the Registration Act, 1908, failing which the transfer will be invalid. Besides, such a transfer is irrevocable. Once the property is gifted, it belongs to the beneficiary and you cannot reverse the transfer or even ask for monetary compensation.

However, if you want to gift movable property like jewellery, registration is not compulsory. At the same time, a mere entry in an account book is not sufficient to establish a transfer. Apart from physically handing over the property, you need to back it with a gift deed. The process is slightly different if you are gifting company shares. You will have to fill out the share transfer form and submit it to the company or registrar, and the transfer agent of the firm. Once again, get a gift deed drawn and executed to complete the transfer, but the document need not be registered.

Advantages: The biggest benefit is that there is no tax implication if you are gifting property to certain relatives. However, you still have to pay stamp duty, which can vary from 1-8% for immovable property, depending on the state in which the transfer takes place. If you are gifting property to a non-relative, the stamp duty would be higher at 5-11%. You have to pay this duty even in the case of movable property. Expect to shell out 2-8% in case of relatives, and 3-8% for non-relatives. For physical shares, the stamp duty is 0.25%, but if these are in the demat form, you don't have to pay.

Limitations: Though a gift deed cannot be revoked, it can be challenged in court, coe rcion and fraud being the most common grou nds. So, if you have been tricked into gifting property, you can take the matter to court and have the transfer reversed. It can also be challenged on the grounds that the donor was not of sound mind or a minor. "You can never have a challenge-free gift deed, but consult a lawyer while drafting it so that the chances of it being challenged are minimum," says Aakanksha Joshi, senior associate, Economic Laws Practice. Also, you cannot gift a property that's held jointly.

Relinquishment deed:

This document is quite different from a gift deed, though the legal implications are the same. You can use this instrument if you want to transfer your rights in a particular property to another co-owner. Such a transfer is also irrevocable even if it is without any exchange of money. As with all documents related to the transfer of immovable property, a relinquishment deed needs to be signed by both parties and registered.
The stamp duty is similar to that for a gift deed. However there is no discount for relatives, nor are there any tax benefits. Also, both stamp duty and tax will be applicable only on the portion of the property that you relinquish, not on its total value. You can also use this deed to transfer movable property without registration, but it is typically used for immovable property.

Advantages: It allows seamless transfer of your share in a jointly-held property. "This document is most commonly used when a person dies without leaving behind a will and all siblings end up inheriting the property," explains Joshi. Unlike a gift deed, you can draw the relinquishment deed for monetary consideration.

Limitations: There are no tax benefits, for as per the tax laws, the term 'transfer' includes relinquishment, not gift. Hence, when you are relinquishing property for monetary consideration, it will result in capital gains for the transferor. "If the consideration is less than the stamp duty value of the property, the difference between the stamp duty and the consideration will be taxed in the hands of the buyer," says Sankla. If you relinquish it without any consideration, the stamp duty value of the property will be its sales price.

Dhruvi N suthar (Account Executive) (303 Points)
Replied 24 December 2013

But In case of Irrevocable Transfer that question of clubbing not get attracted

Siddharth (Article Assistant) (111 Points)
Replied 24 December 2013

Dear Dhruvi,

Irrovocable transfer is a transfer where one party transfers all the rights related to a property to other party.

so even in this case the transfer is either at no consideration or at low consideration, cloubbing of income will get attracted.

Vardan Singh Sengar (Accounts Manager in Private Company) (433 Points)
Replied 24 December 2013

hiii dhruvi...good norning

what is irrecovable transfer???

can u xplain it ??

Dhruvi N suthar (Account Executive) (303 Points)
Replied 24 December 2013

SECTION 61 – Revocable Transfer of Assets

All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income –tax as the income of the transferor and shall be included in his total income.

Section 62 – Transfer irrevocable for a specified period-

The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer

1, by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee or

2, made before the 1st day April, 1961 , which is not revocable for a period exceeding six years

Provided that the transferor derives no direct or indirect benefit from such income in either case.

Notwithstanding anything contained in sub section ( 1 ), all income arising to any person by virtue of such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises , and shall then be included in his total income

Studentsca (CA Practice ) (3577 Points)
Replied 24 December 2013

The simple way to transfer the whole rent income to your wife's income is by depositing the rent cheque received by you to your wife's bank account (can be held jointly but first name should be of your wife but preferably single account is a better option in this case) and you can easily convience the ITO that the income purely belongs to your wife and if TDS is being deducted then only quote your Wife's Pan Card number so the TDS is also reflected in your wife's 26 AS only.

Naishadh Sevalia (Associate Consultant) (32 Points)
Replied 24 December 2013

Guys,

These solutions sound conventional to me (though I am not from I-T domain).

I was looking for unconventional ideas / workarounds but still legal.

For e.g. can I form HUF and the rent income goes to HUF? This can help with lowering my taxable income.

Thanks,

NKS

Naishadh Sevalia (Associate Consultant) (32 Points)
Replied 24 December 2013

Originally posted by : Studentsca
	The simple way to transfer the whole rent income to your wife's income is by depositing the rent cheque received by you to your wife's bank account (can be held jointly but first name should be of your wife but preferably single account is a better option in this case) and you can easily convience the ITO that the income purely belongs to your wife and if TDS is being deducted then only quote your Wife's Pan Card number so the TDS is also reflected in your wife's 26 AS only.

Sounds good..

Currently the rent income goes to joint savings account where wife is first holder. But technically I feel this is not sufficient to free me (husband) with I-T liabilities.

Studentsca (CA Practice ) (3577 Points)
Replied 24 December 2013

You can carry out the leave and licencse agreement between your wife and the person taking house on rent. You can transfer the rights of the property by way of power of Attroney in your wife's name. This is legally possible.

You can also form HUF which is the best way to get an addtional basic exemption limited . And also you can claim some of the deduction by paying your life insurance premium, medical premium i.e mediclaim, contribution to PPF, etc.

Naishadh Sevalia (Associate Consultant) (32 Points)
Replied 24 December 2013

Originally posted by : Studentsca
	You can carry out the leave and licencse agreement between your wife and the person taking house on rent. You can transfer the rights of the property by way of power of Attroney in your wife's name. This is legally possible. You can also form HUF which is the best way to get an addtional basic exemption limited . And also you can claim some of the deduction by paying your life insurance premium, medical premium i.e mediclaim, contribution to PPF, etc.

1) When the flat is co-owned, how can the leave and license agreement be with wife only? Will it not be a concern / query from I-T officer? Also power of attorny will just allow wife to act on our behalf. It won't change the I-T liabilities.

2) HUF is good option. How to proceed in this case?

Thanks