Tax on corpus fund and rent received

Dear Harish,

Hope you are doing well !!

-Security deposit collected at the time of letting out a building to a tenant on the condition that the deposit will be refunded at the time of vacating the building, is not in the nature of income

Refundable rental deposit is not an income due to following reasons :

1. It is refundable, if you have to return an amount it cannot be considered as an income.
2. As per section 2(24) of income tax act, refundable rental deposit is not an income.

But if the owner has deposited such amount and if any interest or any return is received or earned, then such return or interest will be taxable because it is not refundable and considered as income under section 2(24) of income tax act.

-The Income Tax Act of India has a specific head of income, titled ‘Income from house property’, to tax the rent received by an owner of a property. So, any rent received with respect to a property that is let out, is taxable under this head. Rent received with respect to a residential house, as well as commercial property, is taxable under this head. 

From the rent received/receivable for the property, you are allowed to deduct the municipal taxes payable for the property. As the rent is taxable on accrual basis, the law allows you to claim deduction for the rent which you have not been able to realise, subject to the fulfilment of certain conditions. After deducting the above two items, what you get is the annual value, from which you are allowed a standard deduction of 30% of the annual value, to cover the expense for repairs, etc.

Please note that the deduction of 30% is a standard deduction, irrespective of whether you have actually incurred any expenditure for repairs or renovation for the property, during the year under review.

In case you have borrowed any money for the purpose of purchase, construction, repair/renovation of the property, you are also allowed to claim deduction for the interest payable on money so borrowed. The money can be borrowed from any person and not necessarily as a home loan. Presently, there is no restriction on the amount of interest, which you can claim against your rental income.

It is advisable to take a phone consultation for detailed discussion.

The rent received will be taxable as income from house property and the corpus fund if received as reimbursement of any expenses then not chargeable. Otherwise it will be chargeable 

Hello,

Yes, the rent received would be taxable under the head Income from House Property. 

You will be allowed a deduction of the interest on the loan paid for this flat, as mentioned by you and a standard deduction of 30% of the rent. 

Since you are a salaried individual, you need to declare this income to your employer and he will consider this income and make TDS deduction considering this and salary income. Also, you need to declare this income in your income tax return.

I hope that this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Hi

Receipt of corpus fund is a capital receipt and hence non taxable.

Receipt of monthly rent shall be exempt to the extent it is utilised for payment of rent . Any excess amount received shall be taxable.

The rent you are receiving should have been ideally set off against rent you pay but since you are already having a flat you must show it as income from other sources.

The corpus amount is actually a consideration against your flat since you gave him the development rights so you will have to pay capital gain tax on same when you receive the flat again after redevelopment.

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Thank you.