Photo: iStock
Photo: iStock

Rental income is taxable from the date of possession, even if registration isn’t done

  • From the rental income, only specified deductions are available such as payment towards municipal taxes, standard deduction of 30% of net rent, interest on housing loan, if any
  • As per the Income-tax Act, the buyer of an immovable property is required to deduct TDS at the time of making a payment to the seller

I rented out an apartment I own in May 2018 after I got its possession. However, I got it registered in April 2019. While I collected rent in FY19, I made a higher payment to the builder than the rent collected. Do I have to declare rental income since the property was not in my name then? Can I offset the rent received against payment towards costs to the builder?

—Ashok

Generally (subject to examination of actual documentation/transactions), you would be considered as the owner of the property from the date of receipt of complete possession/unfettered rights to the property. So, even if the registration is done later, the income shall be taxable in your hands as rental income from the date of the possession.

The rental income received between May 2018 and March 2019 will be taxable in your hands. From the rental income, only specified deductions are available such as payment towards municipal taxes, standard deduction of 30% of net rent (rent minus municipal taxes paid) and interest on housing loan, if any. The deduction for the amount paid to the builder is not available as a deduction against the taxable rental income. The amount paid to the builder may be added to the total cost of the acquisition of the asset, subject to the documentation in this regard.

I intend to buy a property in Ghaziabad. At the time of paying the advance and making an agreement for sale, I got to know the seller couple was an NRI. But after 20 days, they said they are returning to India permanently. What would be the amount of TDS (tax deducted at source) on the sale of property? What document should I get from the sellers to safeguard my interest?

—Prakash Shivnani

As per the Income-tax Act, 1961, the buyer of an immovable property is required to deduct TDS at the time of making a payment to the seller of the property. Where the seller is a resident in India, TDS is required to be deducted at the rate of 1% if the sale consideration is 50 lakh or more, but if the seller is an NRI, TDS is required to be deducted at applicable tax rates on the taxable income.

As safeguards for determination of residential status, there is nothing prescribed, but it would be advisable that you obtain a written declaration/affidavit (preferably a chartered accountant’s certificate) from the sellers that they shall now permanently move to India and would qualify as tax residents of India for the relevant financial year of sale. You may also request them to provide copies of relevant pages of their passports, containing travels details to and from India. Ultimately, the onus of deducting appropriate tax after verifying all relevant facts will remain with you, the buyer of the property.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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