I have a building(1400 sq ft) in Himachal pradesh which i leased to a trust for 50 years begining oct 2015 and they have paid me the full amount of lease in advance (deed values are 1400 per months...Therefore 1400*12 months*50 years=840000). 850000 all in advance so whether i have to pay income tax on this whole amount(8.5Lac) and show it as Income or i just pay income tax on 16800(1400*12) and show the rest of amount as liabilty on balance sheet ? and is there any Tax deduction that i can claim ? Please guide.
Dear Sir,
You have to pay tax only on the amount relating to that year and not the entire amount of 8.5 lacs. You will get standard deduction of 30% and deduction of municipal taxes paid by you.
However, the lease amount seems to be very low.if the rent in that area is higher than this amount AO can take that amount as a rent.
Please feel free to call/revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
and show the rest of the amount as a liabilty on Balance sheet ? or should i keep it off balance sheet
Yes, balance amount is to be shown in balance sheet as a liability under the head of uneanrned/advance income.
Prepaid income is revenue received in advance but which is not yet earned.
Income must be recorded in the accounting period in which it is earned. Therefore, prepaid income must be not be shown as income in the accounting period in which it is received but instead it must be presented as such in the subsequent accounting periods in which the services or obligations in respect of the prepaid income have been performed.
Entity should therefore recognize a liability in respect of income it has received in advance until such time as the obligations or services that are due on its part in relation to the prepaid income have been performed.
As the lease is structured in a way such that after 50 years the ownership rights will be transferred back to me( making it similar to operating lease under IFRS). so should i depreciate the building in my P&L, although according to the deed maintaing the building is tenant's responsibility ? I also think that only if i depreciate the building in my P&L i can take the 30% Tax deduction and if i can't depreciate it in my books i can not take that deduction. At last, if i can depreciate it then what is the depreciation rate (my little research suggests 5%). Please guide . Thank you
No you need not take depreciation.