Taxes on commercial rental income

Dear Sir,

In reference to your query, please note as:

1. Your mother would be charging GST from the tenants and depositing the same to GST Authorities @ 18%. Hence total tax is net 18%.

2. Income Tax & GST are separate statutes. GST is not an income in the hands of your mother and therefore not a deduction either. Income tax has to be paid on total receipts booked as income subject to the deductions allowed under IT Act.

3. She would be eligible to carry forward the cost of construction in her ITR until the same is set off from her income, however it has to be seen as to how the classification is being done, i.e. as House property income of business Income. 

4. From here my point 3 is answered. Since the property is classifiable as under House property, hence no dedcution of expense is allowed except:

 a. Municipal taxes

 b. Standard Deduction

 c. Interest deduction, if any home loan is taken

5. Once again reiterating, GST is not an expense in your hands. You collect the same from tenants and deposit to govt. hence no burden on you.

6. It is suggested on my part to continue as an individual. Any other mode will increase compliances and that would not be viable at her age.

Please advise in case of any further clarification.

Thanks & Regards,

CA Aditya Dhanuka.

1. She will have to charge GST from the tenants at 18% and pay that to Govt. Tenants can take credit of that GST if they are registered in GST. Tenants will not be required to pay GST further.

2. She will be paying Income Tax on rental income basis the slab rate she will fall. This can be treated as business income for her. She will also have to deposit advance tax.

3. Cost for construction in this year can be adjusted against income. If there are losses it will be carried forward. Minimum 8% profit is to be shown else audit is mandatory.

Treating it as business income can be beneficial. Actual advice will be based on the data.

- GST Applicable @ 18% above 20 Lacs income. only 18%

- income tax applicable on net income excluding GST after netting of 30% of the amount as standard deduction

- cost of construction is not deductible right now but available when you sale the building

- no other deduction

- no she will get on hand income of around 70% - 75% as per net working

- that is only advisable if she is going to incurr lot of expenses on maintenance of building which is over and above 30% of total income otherwise better to show it only as rental activitiy and not as business 

1. She will collect GST@18% from the tenant. Tenant if registered under GST can claim ITC.

2. Income tax & GST are separate laws. Income tax is calculated on the net profit earned whereas GST is payable on the gross receipts. In respect to GST liability, she has to collect from tenant and pay to the government. 

3. Under income tax it would be treated as income from house property. She can deduct the cost of acquisition & improvement at the time of sale of the units.

4. Additionally she can claim deduction of interest on home loan 

5. GST will not be payable from her own income so no question of GST cost to her. Income tax is calculated on the slab rate and not at flat rate of 30%. Net effective tax payable under income tax will be calculated on the basis of actual rent figure.

6. Go with sole Proprietorship business constitution

7. Pay advance tax under income tax Act.

For detailed discussion, you may opt for phone consultation.

Hii

In your above query my views are as under 

let’s spouse her yearly total rental income from all tenants is Rs 30 lakhs

then she will collect gst @18% over this 30 lakh and pay to government there is no loss on 30 lakhs 

30 lakh is her receipts now less property tax spouse 1 lakh 

now rest 29 lakhs is here net receipts 

now apply 30% standard on 29 lakhs deduction ie 8.70 lakh 

now her taxable income is 20.30 lakhs on which she had to pay income tax aprox 30%

there is no difference of personal name or proprietary company 

as per income tax and gst both are same because both laws are pan base

1. she will pay 18% tax as need to be registered , tenant is not required to again pay tax on reverse charge basis

2. she will pay income tax on net income (total rent-gst)

3. you need to consult tax advisor , they will guide and do needfull (procedure to be followed)

4. no 

5.sir this depend on case to case basis

6.this will make no difference

you  can contact us at [deleted]

1. She has to collect GST@18% from the tenant. She is acting as an agent to Government. GST is not her cost. 

2. Under income tax it would be treated as income from house property. She can deduct the cost of acquisition & improvement at the time of sale of the units.

3. She can claim standard deduction of 30% and interest on loan. 

4. Income-tax will be payable at slab rates. 

5. Unless you show that it is her business to rent houses, it would be house property income. If shown as business income then cost would be allowed.