My sister and I have inherited a house from our father. The property is duly registered. What is the tax implication if I reconstruct the same into a 3-storey building through collaboration with a builder, where the builder keeps two floors and we receive one?

Aniket Kale
As per the proposed arrangement to Section 45 of the I-T Act, which will be effective from AY 2018-19 (FY 2017 18), in case of a joint development agreement, the liability for payment of capital gains will arise only in the year in which the completion certificate has been issued for the whole or part of the project by the competent authority.

You will not be liable to pay any tax when you will enter into an agreement with the builder, but you will be liable to pay tax on the stamp duty value of your share in the project, being one floor of the building which will be allotted to you. I request you to please contact your tax consultant to correctly understand the intricate provisions of Section 45(5A) and the working as per stamp duty provisions, depending upon the location of the property.

I own two residential properties, but we are staying in a rental house in same city. Both the houses are purchased with bank loans. Both houses are registered jointly with my spouse and loans are in joint names. Both of us are employed. Kindly advise how to plan my tax. Can I show one house as demeed to be let-out and another as self-occupied? If not, how should be plan our tax?

TC Thomas

If you disclose one of the residential units as self-occupied, then you will be entitled to claim deduction of interest up to Rs 2 lakh. In case of the other residential unit, if it is treated as deemed to be let out, then you will be liable to compute the income under the head Income from House Property, as per provisions of Section 22 and 23 of the I-T Act and you can claim the deduction of payment of interest in respect of the said property.

You need to also ascertain as to who is the actual owner of both the residential units and if it is a joint ownership, then the percentage of ownership. The decision to minimise the incidence of tax will depend upon various factors such as the annual rateable value for each of the residential unit, interest paid, municipal tax paid, etc. You need to compute exactly what is the amount which will be chargeable to tax under different options and then decide the course of action.