Treatment of rental income

396 views 3 replies

Srinivasan Krishnan

Salaried

62 Points Joined February 2016

Hello I am writing to seek expert opinion on claiming tax benefits through income derived from house rentals I am an Income tax assesse, salaried class at 30% bracket working in a private sector. I do not have an HRA. I own an apartment in Chennai and I am renting out the apartment for Rs 20000 per month from April 2016 onwards. The apartment I own is solely in my name only. Subsequently I am moving into a larger house which I am taking on rent and I will be paying a rent of Rs 40000 per month + maintenance I also have a consultancy (proprietary concern) firm that is defunct now.

I am writing to seek views and expert opinion from the members of the forum on the following

1. Can I write an unregistered will in the name of my mother transferring the apartment that I currently own which I will rent out for Rs 20000 / month and collect the rental income in my mother’s name. Since my mother does not have any income the rental income will be tax free

2. Alternately, Can I include the apartment I will be renting out for Rs 20000 / month and the apartment I will be renting in for Rs 40000 / month to my consultancy business to claim tax benefits, where I claim the rental income of Rs 20000 as income received by the consultancy and at the same time I show an expenditure of Rs 40000 + maintenance per month towards renting in an apartment to stay as expenditure. I have no other income in my consultancy business at this point of time

Please advise me what is the best way for me to optimise and pay no taxes I look forward to hearing from you

Regards

Srinivasan Krishnan

Replies (3)

CA MANISH SAXENA

Partner

561 Points Joined July 2013

Hi Mr.Krishnan

Your situation seems very interesting but unfortunately your both Question will have negative answer according to my opinion.

1. You can transfer the apartment that u currently own but this will not reduce ur tax liability as the clubbing provision of Income Tax Act get attracted on the same and such income will be added in Your income.Hence this will not be a better option.

In my opinion from now onwards,I suggest you may form a HUF in which u can transfer your rental income.

2.For your second question,you should not do this as this not a practical thing.

I believe that HUF creation will resolve your all problem.

For further detail you may write here of may contact me here in PM(Private Msg)!

Enjoy!!!

Ruchi

1410 Points Joined March 2015

@ Mr. Krishnan

1. In this case, the rental income will be charged in your name only as clubbing provisions are attracted because this will be a case of revocable transfer.

2. Here also I agree Mr. Saxena that you cannot show rental income and rental expenses in your proprietorship concern.

One thing that you can do is to ask your employer to bifurcate your salary in such a way so as to include HRA also into it. This way you will be able to take 50% HRA exemption available to salaried people and hence save your taxes.

If you create an HUF then you should keep in mind that you should irrevocably transfer the asset and the asset should not be self-acquired property. Because even if one of the above conditions are not satisfied then again clubbing provisions will apply and you wouldn't be able to save your taxes here.

CA Chandan Sharma

Chartered Accountant

283 Points Joined December 2009

Hi Krishnan,

Agree with the above experts, further In continuation the other option, you can claim deduction out of the rent paid under section 80GG of the Act subject to maximum amount of Rs.24,000/- p.a. (The amount is very small still can save tax upto Rs.7,416)