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Real estate investment for future security

If you want to make an investment in real estate, the first thing you need to ask yourself is what you want to achieve out of your investment.

Real estate investment involves certain amount of speculations as you want to make your investment for the next one decade at least. Apart from making an investment in your name, you may consider investing in the name of your wife. However, be it your wife or children in whose name you are making the investment, there are various aspects connected with it.

You may want to make investment for your wife and children for their security and provide them with a steady income in the future. However, aspects related to income tax law are to be seriously considered before making investment in the real estate sector for your wife or for any of your family member.

Keep in mind the income tax

The most important part is mobilisation of required money to make investment in the purchase of the property. If you want to achieve the best results of your investment in the name of your wife, then you need to ensure that you should not make any gift of money to your wife to buy the property.

Suppose, a property is purchased in the name of your wife and the funding of this property is made by the money collected from you or the lady’s father-in-law or mother-in-law. In that event, later on if the property is put to rent, the rental income which comes in the name of your wife will compulsorily be required to be added with your income or income of those who has made the gift to your wife.

The solution to the problem is that your wife can take a loan from you or her father-in-law or any other family member. Once the property is purchased in the name of the wife by having a loan from the husband or the father-in-law or the mother-in-law, then the income arising from that property will be treated as belonging to the wife only.

Self occupation

But the scenario changes when investment is made only to provide for safety and security of the wife and not for renting out of the property. In that situation, even if the property is purchased in the name your wife with 100 per cent funds being made available by the husband, the provisions relating to clubbing of income would apply in terms of section 64 of the Income-tax Act, 1961. But, when we implement in practical life the provisions of the Income-tax Law, we find that because this house/property is in the name of the wife, the use of the property is for self occupation only. Hence, there would be no impact of any extra income-tax liability arising because of clubbing of the income because there would be no income on this property as the property would be used only for self occupation.

In that case, letting out property on rent will bring a secured rental income for your wife and would also imply a special tax deduction of 30 per cent from the rental income to your wife.