How should the rental income be split and also can we get standard deduction and interest on loans deducted from rental income. Cost of building was 70 lakhs. My father owns the land which is worth around 2 cr. And also my father invested 30 lakhs in building . Whereas my sister borrowed money using the property and invested 40 lakhs.
Hi
Rent should be split in the proportion of their investment in the entire property.
Yes, both your father and sister will be eligible for standard deduction and interest deduction.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Hi
Both your father and sister should share rentals in proportion to their investments in the entire property including land and building. Both of them can claim deductions on their income.
Hi,
The ideal way would be to share the Rental income based on the investment made by each party.
As far as the deductions are concerned, that can also be proportionately claimed by each of them .
Regards,
Nikhil.
Hi,
First thing, you need to see the complete ownership documents whether the same bears the name of your sister or not.
Now, if the land is owned by father and building is owned by sister, then please note that the Land and building are assessed separately under the income heads.
Since the rental income solely arises out of residential property, hence the same would be completely taxable in the hands of your sister. However, if the building ownership has the father's name too, then the rental income earned from the property shall be divided as per the proportion of investment made by each individual.
Yes, the standard deduction and interest on loans shall be allowed as deduction.
Thanks
Damini
Standard deduction and deduction on account of interest on loan will depend on the share in ownership. Land and building constitute one unit. Check the percentage of ownership and claim the benefit accordingly.
Hi,
As per the facts provided by you, it appears that your sister borrowed money on security of same property which is owned by your father only. Based on the income and repayment capacity of your sister, the money appears to be borrowed on the property owned by father only.
In this situation, total property is worth now (apporx.) Rs. 2.70 Cr. out of which Rs. 2.30 Cr. is your father's investment and Rs. 0.40 Cr. is your sister's investment. Typically rental income of this property should be shared in this ratio only.
However, since the facts point that your sister doesn't have any ownership either in land or building, because mere borrowing money on the security of father doesn't entitle your sister any ownership rights over the property.
Hence, your sister might not be eligible for any standard deduction or interest deduction on this account, in the absence of any ownership on the property.
If your sister wants to claim any benefit on account of interest/ standard deduction, then the ownership must be shared.
Regards,
All owners can claim the interest and standard deduction.Distribution of income should be done on basic of ownership ratio.
