Tax

If the residential property proposed to be acquired by you is to be utilised for the purpose of your own residence, then the amount of deduction of interest cannot exceed Rs30,000 per year.

Jayesh Dadia, Chartered Accountant

I am an individual and a senior citizen. My two sons are living aboard. They send me Rs1,00,000per month for my maintenance. One of my son also owns a house in India and has let out the house. He has asked the tenant to pay the rent to me which is Rs50,000 per month so that I live a very decent life in India. My question is whether there would be any tax implication in my hand? Whether my son is supposed to file his return of income in India although the rent is collected by me? 

There is no tax implication in your hand, both in respect of receipt of Rs1,00,000 per month and Rs50,000on account of rent. Both these amounts are in the nature of gifts in your hand. Under Section 56(2) (x) of the Income Tax Act, any amount received as a gift from son is exempt. However, you have to keep certain documentary evidence such as foreign inward remittance certificate issued by the bank, which shows the name of your son as the remitterof Rs1,00,000 from abroad. As far as rental income is concerned, your son is liable to file return of income in India and pay the taxes, if applicable. Your son is the owner of the premises and, therefore, he is liable to pay tax on rental income though the rental income is being gifted to you. 

I have created a family trust where the beneficiaries are my wife and three children. Their shares are determined. The trust owns a land in northern India. I am proposing to sell the land andI am likely to earn long term capital fain of Rs2 crore. I want to know how the tax liability is to be computed and in whose hand the capital gain will be taxed? Is there any investment available to claim exemption? 

Since the beneficiaries’ shares are determined, then the trust is a specific trust and, therefore, tax will be paid by the beneficiaries in their individual capacity. Assuming that all the beneficiaries have equal shares, thenRs 50 lakh will be taxed in the hands of the four beneficiaries. All the beneficiaries can investment entire Rs50 lakh in bonds under Section 54EC of the Income Tax Act and can enjoy exemption of capital gain up to Rs50 lakh. Investment in the bonds has to be made within six months from the date of transfer of land. If any of the beneficiaries does not have more than one house, then Rs50 lakh can also be invested in acquiring new residential house in the name of the beneficiary. 

My father ‘Mr A’ died on October 31, 2017. The source of income of my father was interest, rent, dividend, capital gain etc. Although I am the only son, my father made a will where he has made various beneficiaries of his estate such as my uncle, my servant, driver, cousins and some charitable trusts. The distribution of the assets would, therefore, take two to three years. For some estate, I may have to apply for Probate. I, therefore, want to know what would be the procedure of filing the return of income earned on the estate of my late father? 

Since your father died in the current financial year, the return of income is due for filing before July 31, 2018. For the period April 1, 2017 to October 31, 2017, i.e. the date of death, you can file the return in the name of your late father under the same PAN duly signed by you as the legal heir of your father. You have to register online with the Income Tax Department website for allowing you to sign the return as a legal heir. For the period November 1, 2017 to March 31, 2018, all the income earned by the estate of your father would be offered to tax as “Estate of Mr A”.For that, you have to apply for new PAN in the name of “Estate of Mr A”.You could be a signatory as representative of the estate. The new PAN will be allotted to you and you keep filing the return till the time all the assets are distributed as per the will of your father. 

I am an individual and I am likely to acquire residential property for Rs 3 crore. However, I may not get loan from the bank or financial institution due to technical reasons and, therefore, I am likely to borrow from friends and relatives. Can interest paid on loan taken from friends and relatives be claimed as deduction while calculating house property income? 

Under Section 24 of the Income Tax Act, if a property is acquired with borrowed capital, then the amount of any interest payable on such capital is an allowable deduction while computing income from house property. In your case, as the borrowed capital from friends and relatives is going to be utilised exclusively for acquisition of residential house, then the interest payable on such borrowed capital could be claimed by you as deduction while computing income from house property. However, for your information, if the residential property proposed to be acquired by you is to be utilised for the purpose of your own residence, then the amount of deduction of interest cannot exceed Rs30,000 per year. Further, if the new residential house is going to be let out, then the entire interest paid could be claimed as deduction. If the interest paid is more than the income from the house property, then the loss can be allowed to be utilised against other income only to the extent of Rs2,00,000 per assessment year and the balance loss to be carried forward to be set-off against income from house property.