How many Private Companies should I start?

The cost of compliance is high when you float a company and even the income will be taxed at 30.9% without any basic exemption. Apart from this, there can be tax on deemed dividends, when the money is drawn by you in excess of the dividends, if any, declared by the private company.

If the tenants want to sue you or your properties, they can still do so even if you have a private limited company. They can sue the company as well as the directors. If you appoint someone else as directors, you may run the risk of losing control over the company also.

If you still want to hold the property in the name of a private limited company, one company for one or two properties should be sufficient. This will ensure that the legal cases, if any, filed in relation to one property will not have impact on the performance of other companies.

Sir can you mention that the property is how many storied so that we can suggest you regrading the floors to be registered and on whose name.

I'm afraid that you are probably complicating the issue without real benefit. I will draw your attention to the following issues to be resolved in your proposed strategy:

1) There will be service tax component. Company 1 will have to collect service tax from company 2 and you will also have to pay service tax on your lease rental income. On the other hand, company 2 may or may not be able to collect service tax from the tenants.

2) There will be TDS on lease rentals. Company 2 will have to deduct tax at source in respect of lease rentals payable to Company 1. Likewise, Company 1 will have to deduct tax at source in respect of payment of lease rents to you. Thus you may have cash flow issues.

3) Company 2 will get rental income from the tenants and pass on substantial portion to company 1, as this will be the ultimate requirement to get rental income to you. Company 2 will have only marginal income and pay taxes thereon. Likewise Company 1 also will pass on substantial lease rental income to you and will have only marginal income on which it will pay taxes. It may not have sufficient money to buy new plots, unless you only credit the lease rental income and do not draw it in entirety.

Finally you will have substantially reduced lease rental income in your hands after filtering the rents collected from the tenants through the layers of the companies.

4 ) All these are related party transactions and subject to close scrutiny by the Income Tax Department.

After doing all this, are you really protected from the tenants who would like to sue you? They may not have direct contact with you but you may still get into the suits as the director and as equity holder of Companies 1 and 2.

In my view you are really adding up transaction costs without commensurate benefits. Further, how serious are the threats of suing by your tenants, who will be only interested in paying rent and getting amenities as may be mutually agreed upon. In fact, it is you, who may have to sue tenants for non payment of rent. Take a pragmatic view of your risks, costs and ultimate benefit. If necessary you may take proper insurance to mitigate the risk of suits by the tenants.

Dear Sir,

Firstly, let me tell you tenants can sue you even if you use company structure. A corporate veio can be lifted and person behind the veil can be sued.

Secondly, 1 or 2 properties can be housed under each company to ensure that if there is any issue with one building only that company will be harmed.

Please feel free to call/revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

If you are trying to buy house in your name and lease it out to the company, you will unnecessarily incur additional stamp duty, Further, you will not be able to raise your capital in the company. Instead, if your objective is to add partners, expand the operations of the company and ultimately get listed, I suggest that you should invest in the company directly partly as share capital and partly as loan. The company will then buy the property and let it out.

It is very important that you should have sound and viable business plans to get additional loans and listing.

Do not view it only from the point of saving taxes and law suits but take a holistic view of your ambitions, capabilities, constraints and opportunities. You need to have long term planning and suitable strategies to realise your dreams.

Sir kindly see that we are not wasting your time by asking you that How many floors . There was a purpose of asking. We are not here to waste anyone time or money.

You should ask that why we have asked you that question.

We are here to save your taxes and advise you about tax planning. and we are matured enough before posting regrading the answer.

Please note the same before posting .

Your case was simple and for saving tax on the same we asked you the same. Rental can be divided in different companies if each floor is registered on different names. SO many companies, holding companies and other are not necessary.

Your query was 1-crore rental property .

Dear Sir,

This structure will hit major set back in case of income tax since letting of building to company and further letting it to other tenants will straight away results into tax structuring to minimise tax and will covered under GAAR effective from 01/04/2017 i.e. General Anti Avoidance Rules

Rather i would advise following. To set up 1 Co-operative Housing Society with name of you, your HUF & Your wife as its member. Purchase property under that Society. Society shall let out this property to tenant and earn income including maintenance of the society. you and your wife being actively working in the society can get salary income from the society and remaining balance can be kept at fund for future use.

Also if you are letting out this property which are in the nature of residential property than there will be no service tax thereon.

It will minimise your Tax implications, covered your self against legal suits and also ensure your majority of the objectives.

The updated query is specially referred to Mr. VIjaya.

Query specifically asked to Mr. Vijaya.