The Hindu Business Line : Tax treatment of vacant property

The rental income was offered to tax in my tax return, after taking into account a 30 per cent deduction on the same. In the current year, the property remains vacant.

Should I still pay tax on the rental income? What would be the tax treatment, as the said property is remaining vacant?

If I were to gift the income from the property to my mother, who is a senior citizen and has no other income, what will be the tax implications? Will there be a tax on the gift made by me to my mother? — Brito

Section 23 of the Income Tax Act permits the annual value to be taken as NIL, if the property could not be let.

In accordance with this provision, the annual value of the said property can be taken as NIL and against the same, deduction can be claimed in respect of taxes levied by a local authority on the said property.

If there is a loss as a result thereof, the loss can be set off against your salary income in computing your tax liability. There would, therefore, be no requirement to offer the rent from the property to tax, if it is vacant, as a result of the fact that the same cannot be let. If you gift only the rental income from the property to your mother, who is a senior citizen, the income therefrom, if any derived, must be clubbed in your hands since Section 60 provides for such clubbing, where there is the transfer of income from an asset without the transfer of the asset itself.

You may, however, consider gifting the asset itself to your mother in which case there would be no clubbing attracted.

In either case, whether you gift only the income from the property or the property itself to your mother, there would be income tax implications on the gift per se.

You may, however, have to consider the stamp duty and registration expenses that will arise on the gift of the property to your mother.

I am a salaried employee. I have also dealt in shares in the previous year 2007-08.

If there is a loss from the trading in shares, can I set off the loss against my salary income? If not, what should I do to carry forward the loss and set it off against my subsequent years’ income? — Rajesh Gupta

You have not indicated whether the dealing in shares by you will be in the nature of an income, which would be chargeable under the head capital gains or under the head profits and gains of business or profession.

In either case, however, you may note that the loss if any cannot be set off against income, under the head salary, due to an express prohibition in Section 71 on such set off.

You may, however, carry forward the loss and set it off against any income under the same head i.e. under the head capital gains or profits and gains of business or profession as the case may be within a period of eight assessment years immediately succeeding the assessment year in which the loss is first computed.

For such carry forward and set off, you would, however, have to file your return before the due date for filing the return of income as stipulated in Section 139(1).

About four months ago, a commercial property belonging to me was settled among my family members comprising my wife, two married daughters and myself. The settlement deed in this regard has been duly registered. We all are tax assessees.

What will be the tax treatment in respect of the rent received after the date of settlement? — A. Selvaraj

Apparently your daughters are not minor children.

Assuming that the property has been settled equally among all four of you, the income by way of rent would also belong to all four of you equally.

The income of your daughters would be assessed to tax in their individual hands.

The income of your wife would be, however, assessed in your hands and as your income by virtue of the clubbing provisions in Section 64(1), which provides that where a property is transferred by an individual to his or her spouse for inadequate consideration, the income from such property is to be clubbed in the hands of the transferor.

It is understood that in the instant case, the settlement of the property is by way of gift and without consideration or for inadequate consideration.

What is the basic exemption available for women? — Sheela George

For the assessment year 2008-09, the basic exemption for women who are resident in India is Rs 1.45 lakh.

For the assessment year 2009-10, the basic exemption for women who are resident in India is Rs 1.8 lakh.

If, however, you are a senior citizen, i.e. 65 years or more at any time in the previous year, the basic exemption would be Rs 1.95 lakh for the assessment year 2008-09 and Rs 2.25 lakh for the assessment year 2009-10.

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