We have a Property in Chennai on My Wife's name as a settlement deed Carried out by My Father in Law who is expired. My Wife too expired 3 Years back and Rental from this property is been collected by My Brother in Law from July 2014 on his name by means of Cheque / Cash and deposited in his account , on our oral agreement ,since we were not interested any money from that property, we wanted to gift the same( Property) to my Brother in law. The Property is still in my Wife's name. My self and My Only Son are the Legal heir for My Wife. Since We did not receive this Rental income , we have not accounted in our IT Returns!. For this scenario , We wish to know who should pay income tax and account the rental income? Is it My Brother in law or We ( Legal Heirs?)
Dear Sir,
You should make a back dated agreement in writing whereby you are giving away right for collection of rent income and gifting it to your brother in law after 3 years. And in current date you should execute gift deed for better tax treatment and avoid tax incidence on you.
By incorporating this documents you can safeguard yourself from tax effect.
Dear Sir,
It's better you gift this property to your brother in law and prepare a gift deed. Then onwards, rental income will not be taxable in your hands.
Please feel free to revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
By your conduct, you have gifted to your brother in law the right to receive rental income, without transferring property. If the income is transferred without the transfer of property, it will be clubbed in the hands of the transferor u/s 60 of the Income Tax Act. For your ready reference, I am quoting the section:
"Transfer of income where there is no transfer of assets.
60. All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income. "
Hence, the rental income received by you should have been clubbed with your income, as you did not transfer the property.
However, in your case, you want the property also to be gifted to your brother in law. Transfer of immoveable property requires registration, which is not done in your case. Nor there was a will of your wife to give the property to your brother in law.
I suggest that you may execute a gift deed now and recite specifically that you allowed the use of the property to your brother in law and this gift deed is to record the gift made by you verbally.
Hello Sir,
Since the property is still in your wife's name, you are the one who is required to pay taxes on it.
In such a scenario it will be preferred either you collect the amount - show it in your returns - pay taxes on it - and then transfer the balance to your brother in law.
If you dont want the hassle, you may transfer the property to your brother in law.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, ACA, LLB-GEN, CERT. FAFP
