Ajit (Others) (40 Points)
10 October 2014Can I avoid paying service tax on rent income, if I rent part of the building to my wife, who in turn sub letting out that part also to the same party to whom I have rented the other portion of the building. That way can we split the rental income to make it below 10 lakhs per year for each of us?
Please clarify. For income tax purposes, I shall show the total rent income in my name.
Ajit
Kunal Mittal
(FINANCE OFFICER)
(580 Points)
Replied 10 October 2014
1). You cannot sub let the premises. Even if you let it to your wife who sublets in her name you are liable to S.tax on her subletting also so u stand no good from this transaction
2). showing it in ur income tax return whereas actually it is sublet by ur wife will amount to fraud on ur behalf and ur wife's behalf.
You have no option but to pay S.tax.
CA Himanshu Bansal
(Risk Manager)
(2345 Points)
Replied 11 October 2014
Hi,
Service Tax Purpose :
You say you will sublet a portion(obviuously at a lower rent than the portion let out to independent tenant).Now, how will you substantiate the lower rent consideration whereas for the other portion you shall be receiving higher consideration ? This case may fall under "short levy-short paid" of service tax which involves penalties, and you may receive a showcause from Service Tax officer, after which you may not be able to substantiate your stand, since apparently it will emerge as an activity to avoid the levy of Service Tax.
Income Tax Purpose :
Section 27 of Income Tax Act asks the assessee to pay tax on income from house property where the income is diverted without transfer of property.So, there will be different taxable turnovers.
Practically and technically your planning may not work if you are caught (taken up for scrutiny in either of the law).Until one is not caught, everything is good.
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