I have taken my Father's property on lease and paying nominal rent and have constructed building by availing bank loan and have let-out to third party. Please answer the following: 1) Under what IT Head is sub-let Rental income is chargeable? 2) As per lease agreement between me and my father it is agreed that property tax/ municipal tax will be beard by me. Can I claim deduction as my expense? 3) Land lord gets 30 % standard deduction, can I claim this also and can I claim interest and principal amount paid by me on loan taken? 4) what other deduction s are allowed? Please advise lease agreement for 10 years have been made between me and father (owner).
Dear Sir,
1) Sub-letting income is taxable under the head Income from other sources.
2) Municipal taxes paid by you will not be deductible.
3) No standard deduction of 30% allowed to you.
4) You can claim repair and routine expenses incurred by you for the property otherwise no deduction allowed.
Thanks
Please advise what is the maximum amount can be claimed as repair and other expense and under which clause this is allowed and please also let me know any bills or proof of expense needs to be submitted.
Hi
1. Other sources
2. Yes. You can claim all actual expenses incurred by you including the rent paid to your father.
3. No. All those benefits are only for owner of the property. Since you are not the owner, you can't claim these deductions.
4. Justified expenses in order to earn such income may be allowed.
According to Sec. 57 : Deductions from 'Income from Other Sources
The income chargeable to tax under this head is computed after making the following deductions :
Any other expenses for earning income [ Sec. 57(iii)] :
if the following 4 basic conditions are satisfied :
i. The expenditure should be incurred solely for earning such income
ii. it should not be in the nature of capital expenditure
iii. is should not be in the nature of personal expense.
iv. is should be incurred in the relevant accounting year.
1) Sub let income should be cahrgeable under head "Income from other sources"
2) No, Muncipal tax should be borne by the owner and should be paid by him for claiming the deduction
3) No 30% deduction is only available to owner
As per the lease agreement it is agreed municipal tax/property tax will be beard by me (son) so in this case suppose my father pays property tax and I reimburse the tax amount paid by him, is this expenditure allowed? Assuming my father does not claim municipal tax paid on his income from house property and also please advise if I can claim interest on loan as my expenditure, as loan was borrowed for generating income.
This is a litigative point. There may be different opinions.
According to my opinion, these expenses should be allowed as deduction of expenses as it satisfied all 4 conditions of allowability.
To your first question:
1. Sub rental income will be charges under Income from Other sources.
2. Yes you can claim the property tax/municipal tax along with the rent you pay to your father as a deduction from the total income.
3. I am afraid, this is not applicable to you. It can only be claimed by the owner of the property.
4. The routine expenses and the justified repairs and maintenance expenses that you will incur which are mandatory to earn the income you derive currently, will be allowed.
There is no maximum limit to the repairs and other costs but it needs to be justifiable and you should be able to substantiate the same with adequate proofs if asked to do so.
Though the Municipal and property tax may still be allowed in spite of the fact that your father pays and you reimburse, but why not make the transaction more simple by you paying yourself from your bank account?
The interest on loan can be claimed as an expenditure to earn the income.
Dear Sir,
Interest on loan can be claimed as deduction if there will be direct nexus between expense and rental income.
If your father pays the tax and you reimburse it then it is not borne by the owner. In my opinion it is not allowed deduction to both.
You can claim on interest on loan as deduction
Hi,
Answers are as below:
1) Sub-rental income is chargeable under the head Income from Other Sources.
2) Deduction for municipal taxes shall be allowed as it is directly attributable to source of income.
3) You can only claim interest paid on loan taken for construction of property. No standard deduction or principal amount deduction shall be allowed.
4) As a matter of general practice, whatever amount is taxable under the head "income from other sources", any expense which can be directly attributable to the source of income arising, can be claimed and allowed as deduction from that income. However, the same should be in the nature of expense only. Not like payment of principal component of loan or any major repairs or renovation expense carried on the building.
Feel free to revert for any further clarification.
Regards,
Hi,
1. It will be income under the head other sources.
2. Yes, you can take the deduction.
3. No, you can't get standard deduction. But interest can be claimed as expenditure.
4. Lease rental paid by you to your father will also be eligible expense.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Hi,
1. It will be taxable as Income from House Property.
2. Yes, you can claim a deduction of the property tax
3. Yes, you can claim deduction of 30%
4. You can only claim deduction of the interest and principal that you are paying
Repairs cannot be claimed by you separately as you are offering it to tax as Income from House Property.
Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
Hello,
I will need to go through your lease agreement before, to answer your queries. The reply solely depends on the language used in your agreement.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
subletting income is taxed under Income from other sources.
Expenses incurred directly for earning that income can be claimed as deductions.
Standard deduction will not be allowed to you.
Interest on loan can be claimed by you.
