My wife and I are co-owners of a house for which I had taken a home loan 10 years back. How should we charge rent now to reduce tax liability? Also who will get the rent?
—Name withheld on request
As per the provisions of section 26 of the Income-tax Act, 1961, if the property is owned by two or more persons and their respective shares are fixed and certain, then the share of each such person shall be included in their respective income-tax return. Accordingly, the rental income earned is taxable in proportion to the share owned in the hands of each co-owner.
Based on the available facts, we assume that the entire amount invested for the purchase of the property (including repayment of the housing loan) is from the husband’s sources. In view of the same, from tax point of view, it is possible that the husband may still be considered as the owner of the entire property and accordingly the entire rental income will be treated as taxable income in his hands. Further, in such a case the standard deduction of 30% and deduction for payment of interest on home loan and principal (under section 80C) of housing loan, shall be available to the spouse only. However, the documents will need to be reviewed in detail.
I invested the amount 2 lakh in liquid funds in 2019. I transferred it to short term debt fund in 2020. Can I get indexation benefit after completion of 3 years from initial investment?
Based on the limited facts available, we understand that in 2019 you had invested in units of a liquid fund and subsequently switched to a short term debt fund in 2020 within the same mutual fund company.
As per the provisions of the Income Tax Act, 1961, a unit of a debt fund will be treated as a Short Term Capital Asset (STCA) if it is held for not more than 36 months prior to the date of transfer. If such units of a debt fund are held for more than 36 months, it will be treated as long-term capital asset (LTCA) and is eligible for the benefit of indexation at the time of computation of long-term capital gains (LTCG).
It is important to note that as per section 2(47) of the Act, the word ‘transfer’, other than sale of property, includes exchange or relinquishment of asset. Where the investment made in a liquid fund is switched to a short term debt fund, it essentially involves exchanging the units held in the liquid fund for units of the short term debt fund at the applicable net asset value of the fund concerned .
Thus, the exchange would constitute the transfer and the gains arising from the exchange of units would be subject to tax as STCG income in the year (as the units did not exceed 36 months) in which the investment was transferred from the liquid fund. went. Short term loan fund.
Further, the units of the short-term debt fund acquired in 2020 would qualify as LTCA and the benefit of listing would be available on their sale, only after completion of three years from the date of investment made in such short-term debt fund.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.
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