You need to invest in capital gain bonds of government. Or reinvest the said income in 3 years to avoid same
How to minimize income tax on rental income/capital gain for a property that I am going to purchase
This topic may relate both to 'Property laws' (commercial) and 'Taxation' (Income tax & capital gain tax on rent/sale of commercial property). Objective: To save income tax on rental income to a commercial property that I am going to purchase soon, and also to see how capital gain tax on sale of this property in future can be minimized Background: I am a salaried person, my wife is not doing any job or business since many years, have been abroad for couple of years (for 2.5 years in 2007-2009, and 4 years in 2014-2018). My current income tax slab is 30%. I & my wife own the following properties - (1) 2 houses that are on rent, both are on rent, I and my wife have been showing 50% split on the rental income since we purchased those houses (14 yrs and 5 years back) (we live in a rented house as well). We own some agricultural land as well (our ITRs show income from agricultural land, which is very nominal), we own residential plots in our hometown. Next Step: From my savings (which is mainly from earnings abroad, still in NRE bank account), we want to purchase a commercial property (shop) and put it on rent. In future, if rate of this property goes up well, we will sell out this property at appreciated rate. Also, in next few months, we want to sale out one of our residential properties (with minimal gains) and buy another house in the area we live on rent currently. Solution Required: If I buy this commercial property in my name alone, then we will have to pay 30% tax on the income, but if it is bought in my wife's name then she will pay less than 10% tax (due to lower tax slab). I checked and found that even if I gift this property in her name, there will not be any benefit in income tax (as this rental income will be counted as 'inclusive' for taxation). We seek, all possible ways to minimize overall income tax by whatever means available as per tax laws, kindly advise accordingly. (I will answer mails/calls promptly)
Asked 6 years ago in Taxation
9 Answers
Individual and his or her spouse have jointly taken a home loan, both can claim tax exemption towards payment of principal and interest or use the house property to run any business or profession
Could you please answer to the specific question, that I asked after explaining background situation. I said, I am going to purchase a COMMERCIAL property, using money from my NRE bank account, I am seeking advise to lower income tax on the rental income of this commercial property.
Asked 6 years ago
The Income Tax Act does not differentiate between a commercial and residential property. All types of properties are taxed under the head ‘income from house property’ in the income tax return.
Hello Yogendra, Thanks for this valuable input ! I am going to buy this property using my savings (NRE account, that has money saved while working abroad). Can I buy the commercial property jointly in my name and my wife's name ? (We are not going to take any loan). If my wife becomes co-owner of this property, will it be considered as 'GIFT' in legal term ? Naturally, after the rental income starts on this property, I will show 50% of the rent as my income - taxable at 30%, and my wife will show the remaining 50% rent - taxable at nearly 0%. If this is permitted, I will go ahead to buy the property jointly, please advise.
Asked 6 years ago
1. The rental income from commercial property cannot be excluded from taxed income so my suggestion is that you should purchase the property in name of your wife by gifting her the money required for purchase.
There is no tax payable while buying a property.
By selling the property you may have to pay the long or short term capital gains tax as applicable.
The rental income will be income from other sources hence applicable taxes are to be paid.\
There are provisions under different sections of the Income-tax Act that can help you save on LTCG tax
Capital gains exemption will be reversed if you sell the new property within three years of purchase.
“The exemption under section 54 is available when the capital gains from property sale are reinvested into buying or constructing maximum two houses.
However, the capital gains on the sale of house property must not exceed ₹2 crore in order to claim exemption for reinvesting in two properties. This benefit can be claimed only once in the lifetime.
If you sell property that is not your main home (including a second home) that you've held for at least a year, you must pay tax on any profit at the capital gains rate of up to 15 percent. It's not technically a capital gain, but it's treated as such.
Section 24(b) of the Income Tax Act allows you a deduction for interest on any money borrowed to buy, construct, or even for repair or reconstruction of a property. The interest can be claimed for residential as well as commercial property.
The interest can be claimed for any money borrowed be it from banks or friends and relatives, as long as you are able to prove actual use of the money borrowed is for the specified purposes.
The quantum of deduction for the interest which can be claimed will depend on whether the property has been let out or is used for own residence. For a self-occupied property, the deduction is restricted to Rs. 2 lacs only whereas for a let-out property, you can claim full interest. If you have more than one self- occupied houses, you have to select one house as self-occupied and the other house/s is treated as let-out. In such case, you have to offer notional rent for taxation on such property and can also claim full interest payable in respect of such house treated as let out. So in order to maximise your tax benefits, it is advisable to treat the property on which interest is lower as self-occupied in case of interest payable on any or all of the property is more than Rs. 2 lakhs in such cases.
You can buy the property on joint names with yor wife as a joint owner, however in the absence of her investment she may not be able to claim any exemption towards income tax.
if the property is held jointly, individuals can receive additional tax benefits for the same cost.
A house can be held jointly with anyone not necessarily a spouse or parent, but it can also be with a relative, friend or even a business associate.
Holding property in joint names will provide a tax benefit to individuals who receive rental income as well. Firstly, the rental income will be divided between the owners. In case one of the co-owners falls in the lower tax slab rate, they can avail the benefit of a lower tax rate on a part of the rental income received.
Yes, it will be benami property purchased from known source of income.
Merely purchasing in the name of wife or in co ownership dose not make her owner. Ownership vest in the contributor in purchase. But this will need court order.
In documents she is co owner and holds 50% ownership - not gift.
Go ahead, no complications, and if you take loan, tax will reduce due to loan repayment from profit/rent.
You need to invest the same within 3 years or purchase capital gain bonds