• Introduction of property as capital into a partnership firm/LLC/Pvt. Ltd.

I am planning to start a business which would primarily be into leasing out properties and investing in new properties. For now, me and my dad own certain properties of considerable value. We would like to introduce those into the said company/firm. My queries are:
1. For the said business, is it advisable to form a partnership firm/LLP (we have full faith in each other and hence we prefer firm over LLP), Pvt. Ltd. or as two sole proprietorships, one for each. 

2. What are the tax implications and stamp duty implications for transferring the said properties to the firm/company. I read somewhere that there is no need to officially transfer (written sale/transfer deed) the said properties to the firm but the partners can just intend to bring their separate properties to the firm as stock of the firm without officially transferring the properties to the firm. And by virtue of Contract Act and Partnership Act, the properties are to be treated as the firm properties. 

3. Since, my business would be leasing and investing in new properties, will the rent income be treated as income from house property or business income. And if business income, can I claim the standard 30% deduction that I get while claiming the income from house property.

Or is it better to the not get into the firm/company and just operate as sole proprietorship.
Asked 18 days ago in Property Tax

1. The decision will all depend on the amount of income that you are planning to earn from such renting business etc. and whether you are ready to incurr the other cost or not.

2. Transferring such property could be equivalent to normal stamp duty value of transfer. I would recommend to transfer the property if you are going to do business from such entity.

3. If you show it as stock in trade it will be considered as business income otherwise income from house property.

 

Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
4008 Answers
64 Consultations

5.0 on 5.0

 

1. Partnership firm is taxable @ 30% flat. Private Limited company is taxable @25% flat. In case of Pvt. Ltd. company, you can opt for lower tax @22% u/s 115BAA subject to conditions. Forming Pvt. Ltd. company is benefical.

2. Property should be in the name of the company. 

3. Income from house property

 

For detailed discussion you may opt for phone consultation.

Vivek Kumar Arora
CA, Delhi
4408 Answers
527 Consultations

5.0 on 5.0

Hi,

Partnership firm would be taxed at 30%. You could also think out starting company as it has lower tax rate of 25%. The property would be transferred to the firm or company at stamp duty value. If the property is shown as stock in trade it will be considered as business income otherwise, it will be income from house property.

 

 

Prerna Peshori
CA, Pune
40 Answers

5.0 on 5.0

Yes, it is not mandatory to transfer the property in the firm's name by the partners. No stamp duty and registration charges are to be paid by the firm if no transfer deed or such document has been executed. The property can be considered the property of the partnership property under section 14 of the partnership even in the absence of such a transfer document.

Rental Income from a property can be treated as Income from house property or income under the head business, depending upon the company's nature. If a person is letting out a property, then the rental income from all such parcels will be considered a business income.

Although a 30% standard deduction is allowed from Income from House properties, you can deduct all the expenditures exclusively made for the business if you treat the income as business income.

If you are not in the 30% bracket tax slab, I will advise you to have separate proprietorship firms to carry out this leasing business so that you can enjoy the slab rate benefit.

Puja Sharma
CA, Jaipur
6 Answers

Not rated

I will advise you to have a sole proprietorship form of business for the existing properties so that you can save the transfer charges and take slab rate benefit. PFAS income is charged @ 30%.

 

If you want to scale up your business in the future, you can form PFAS for all the new properties acquired in the firm's name.

Puja Sharma
CA, Jaipur
6 Answers

Not rated

From tax point of view will recommend to have two sole proprietorship which will give you better advantage in terms of GST & Income tax liabilities and in future  when you plan to sell can also have advantage of saving from Capital Gain Taxation giving you better commercial milage

 

Also that will benefit you to save on stamp duty and succession planning in future which is also important factor to consider

Vishrut Rajesh Shah
CA, Ahmedabad
789 Answers
30 Consultations

5.0 on 5.0

- Buildings will be treated as fixed assets and income from such buildings will be treated as business income.

- Incorporate a Pvt. Ltd company

 

For detailed discussion, you may opt for phone consultation.

Vivek Kumar Arora
CA, Delhi
4408 Answers
527 Consultations

5.0 on 5.0

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