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Wife owning business and pay rent to husband

Tax queries 2452 views 3 replies

Husband with his own funds have bought a commercial property and have got it registered in both his name and his wife's name. This property is leased out to a 3rd party and rental income is shared between husband and wife in the ratio of 4:3 resp. Both husband and wife files their taxes separately.

Now lease with 3rd party is expiring and the premises is getting vacated, wife wants to start her business (wife's sole proprietorship) in that premises.

1. Can she pay rent to her husband and show the same as business expense? Can husband treat the same as his income from house property? Is there any chance of clubbing?

2.  Can wife also employ her husband and pay salary as well? Any chance of clubbing?

Replies (3)

1. Since the property is registered in both husband and wife's name she cannot pay rent for own premises.

2. She can employ husband and pay salary and get deduction if he has the qualification/ expertise to do the work. 

First of all husband purchased a property which had been registered in both name of husband and wife and assuming no gift deed prepared.

 

1.  in this case clubbing provision u/s 64 (1) (iv) will attract to rental income ( which was shared by them in ratio of 4:3) that is to taxed in the hand of husband only. 

 

2.  because husband is a deemed owner of property u/s 27 so in this case wife can pay rent to husband and claim as expenditure.

 

3. wife can employ her husband on salary basis but husband must posses qualification and knowledge compatible to business other wise clubbing provision apply u/s 64 (1) (ii)

 

 

Thanks Madhavi Ji and Sudesh Ji for responding but I'm still confused about my query # 1, as both the replies are contradictory.

1. Please give me more clarity if in this case wife can pay rent to husband? If so, can she pay full rent or only 50% of the rent to her husband considering wife is also the co-owner of property as per sale deed.

2. So far husband and wife used to split rent and declare as their independent income. Now I understand ideally income should have clubbed. Since return have already been filed like this for the past 5-6 years, can tax department bring all these past returns under scrutiny and levy penalty?


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