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Nov 10, 2012, 12.18 PM IST | Source: Moneycontrol.com

Real estate investment for your wife and children

The fact remains that investment in Real Estate happens to be the cherished deal of one and all.

The fact remains that investment in Real Estate happens to be the cherished deal of one and all.  The investment made in Real Estate as made by past success stories of all investors in the world reveals that your investment in real investment cannot become your bad investment.  What is required right now is to examine the various aspects connected with investment in Real Estate in the name of your wife and your children.  It is a well known fact that every married person would like to plan and formulate his investment in such a manner that by making investment specially in Real Estate he is able to provide a safety net to the family members particularly the wife as well as the children. At any point of time in your life if you are contemplating to make investment in Real Estate, please do remember that before immediately jumping into the area of taking a management decision to make the investment in Real Estate sector, better screen the practical aspects connected with your own family and just do not be a copy cat with other friends, relatives or persons whom you may be in touch with.  Now is the time to firstly screen your requirement of Real Estate and to come to a positive conclusion as to what you want to achieve out of your investment in Real Estate.  Once you have formulated your mind about your requirement of Real Estate for the next one decade at least, then is the time now to think of various aspects connected with the investment in Real Estate specially in the name of your wife and your children. 

Just as you can make investment in Real Estate without any problem, similarly, your wife can also make investment in Real Estate in her name without any problem and tension.  However, the most important point which requires  deep concentration and consideration before making investment in the Real Estate Sector in the name of your wife are the aspects connected with Income-tax Law.  Although we are talking about the investments to be made in the Real Estate Sector but the fact remains that income-tax strategy and taking care of the provisions of the Income-tax Law before jumping into making investment in Real Estate are really very crucial important pointers which will help you and your family in the years to come to reap the fruits of your wonderful journey in the wonderland of Real Estate investment.  Hence, before making any immediate and instant decision about buying a property in the name of your wife, do ponder over the provisions of the Income-tax Law as are scattered in different places of the Income-tax Act and only thereafter make a decision to buy the property in the name of your spouse. 

One single most important point which requires to be kept always in mind before buying the property in the name of your wife relates to 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 please do ensure that you should not make any gift of money to your wife to buy the property.  This suggestion of mine might appear to be little absurd but the fact remains that if you contribute money for buying the property in the name of the wife, in that event the provisions concerning clubbing of income would apply in your instant case.  This is mainly because of the provisions contained in section 64 of the Income-tax Act, 1961.  To make the things simple please make a note that if a married lady receives any gift from her husband or from her father in law or from her mother in law, in that event the income arising from the said property in the name of your wife will be compulsorily required to be clubbed with the income of the husband.  Thus, it implies that if a property is purchased in the name of your wife and the funding of this property is made by the funds available from the husband or father in law or mother in law of that lady, in that event later on if the property is put to rent, the rental income which comes in the name of the wife will compulsorily be required to be added with the income of the person who has made the gift to your wife.  Hence, it makes no sense to buy a property in the name of your wife with the gift coming from the husband or the father in law or the mother in law of your wife.  This provision might make you little sad while you propose to buy the property in the name of your wife but the fact remains that this one single important point should always be taken into consideration before making any investment in Real Estate in the name of your wife.  However, the best solution to do away with the above mentioned problem is to buy the property in the name of the wife and in case the wife is having no money available at her disposal, then wife can borrow the money from the husband or from the father in law or from the mother in law or for that purpose from any other person from the whole world.     
 
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.  However, always do please ensure that some reasonable interest should be paid by the wife in respect of the loan taken by her specially from her husband, from her father in law and from her mother in law.  However, from other relatives or friends, the wife would be able to take loan amount even without payment of interest.  Thus, at any point of time in your life if you are contemplating to purchase a property in the name of your wife, please remember this one single most important point from the point of income-tax Law so that you are not caught in the wrong trap.  Whenever a property is targeted to be purchased in the name of your wife, just adopt the simple procedure of making the initial payment of the property only from out of the funds belonging to the wife and later on as and when the money is required to be invested in the purchase of the property, the same can be taken as loan from friends or relatives or from husband or father in law or mother in law.  Once this simple action plan is implemented into real life story, then there will be no hassles and problem in connection with purchase of the immovable property in the name of your wife. 

The investment made by your wife will enjoy separate independent reduction in respect of interest on the housing loan to the extent of Rs. 1,50,000 per annum.  Please do remember that the loan can be taken from anyone in the world and it can be taken at any rate of interest as decided by the parties.  Likewise, your wife will also enjoy a separate tax deduction in respect of repayment of the housing loan in terms of section 80C of Income-tax Act, 1961 within the overall limit of Rs. 1,00,000.  However, also please do note that the deduction in respect of repayment of the housing loan is permissible only in case of loan taken for house from selected agencies only like the bank, the employer etc., etc. 

It is also possible for the husband and wife to buy one single property jointly.  However, from tax planning strategy it always makes a sense to buy the property jointly in the name of the husband, the wife and may be other members of the family specially in a situation where the interest on housing loan is a big amount.  The purpose of adopting this strategy is to ensure a separate income-tax deduction for every member of the family in respect of interest on housing loan as well as on the repayment of the housing loan.  Also it is recommended that whenever you want to buy a property in the name of your wife and specially when she has no income and no wealth as on today, then better obtain a Permanent Account Number in the name of your wife so that it would be of help to you in the years to come. 

For all those persons who are interested to buy property in the name of the wife with one single agenda in mind namely to provide for safety and security of the wife and not for renting out of the property, in that situation please do remember that even if the property is purchased in the name of the wife with 100 per cent funds being made available by the husband, in that situation as mentioned above we have noted that 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.  In that situation 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 this type of situation it may be recommended that the property be purchased out of the funds belonging to the husband but in the name of the wife.  This theme would be helpful specially if you are buying your first property. 

Please do remember that your purchase of property in the name of your wife will bring safety and security for your wife and would provide immense mental satisfaction to you in the years to come.  Hence, based on the above concept of income-tax strategy go ahead in buying the property in the name of your wife and reap the fruits of Real Estate Investment.  Also do remember that merely for purchase a property it is not compulsory to file Income-tax Return,  Sometimes a question might arise in the minds of the tax payers that what if I obtain a Permanent Account Number in the name of my wife, I buy the property in the name of the wife and she has no income, whether in such a situation because of having the Permanent Account Number the wife has to file the Income-tax Return ?  Please do note that merely having a Permanent Account Number does not cast any legal obligation to file your Income-tax Return specially if there is no income at all.  Hence, do obtain a Permanent Account Number in the name of your wife.  Follow carefully the provisions contained in section 64 of the Income-tax Act, 1961 and get go in buying the property in the name of your wife. 

If your objective is to provide permanent safety, security to your wife coupled with a fixed income per month, in that situation you should think of going in for making investment in the name of your wife either in a commercial property or in a residential property with the object of giving such property on rent.  While buying the property with the basic aim of letting out the property, please do remember that the rental income received from such property purchased in the name of the wife will be her rental income specially if you follow the guidelines given in the above mentioned paragraphs.  However, if the property is purchased by getting a gift from the husband and such property is let out, in that situation the rental income will now belong to the husband only and tax to be paid in the name of the husband.  To do away with this type of problem always buy the property in the name of your wife with her loan and never a gift from the husband.  Letting out property on rent will bring a secured rental income for your wife and would also mean a special tax deduction of 30 per cent from the rental income to your wife thereby resulting into lower dose of income-tax payment.  If you are having substantial income in your name, then surely it makes a sense to buy the property for the purpose of letting it out in the name of your wife so that such rental income is separately assessed in the hands of the wife and suffer lower dose of income-tax. 

The security of your wife in the years to come through Real Estate in her name can also be secured with the concept of preparation of a Will whereby through the Will after the demise of a person his properties are given away to his wife.  It is recommended that all persons at least after the age of 50 must prepare their Will and plan their succession in such a manner that whatever Real Estate to the wife is given away through the Will of a person so that in the years to come there are no hassles and tension arising from the Real Estate investment made by the group. 

An innovative idea for Real Estate Investment for your wife can also be explored through the new concept of setting up Ladies Real Estate Kitty.  In this innovative concept some sort of arrangement should be planned on the theme and on the basis of the Ladies Kitty program and thereby investment in Real Estate can also be worked out.  It is also recommended that the group of Ladies should also form a group with the aim of uniting together to make investment after getting a bulk discount from the developer just because they are coming a group and making a bulk deal to make investment in Real Estate. 

Just like making a Real Estate investment in the name of your wife, it is also suggested that the investment in Real Estate should also be made in the name of your children.  If you have got major children, in that situation you can immediately gift away either your existing property in the name of your child or in the alternative if you finance the full purchase or partial purchase of Real Estate in the name of your major child  clubbing provisions would not apply.  Thus, it is crystal clear that for your major children you can buy the Real Estate in their names or you can even gift the Real Estate to them and in all the situations the income arising from the Real Estate will not be clubbed with the income of father or mother because of the fact that your child is a major child.  I would suggest that every family should adopt this concept of each one reach one namely to buy at least one property in the name of each family member.  I know it is a difficult proposition but once you aim at it, then in the years to come you will find that you have really made very good investment strategy for your family. 

In the case of persons having minor children, please note that if you make a gift of Real Estate to your minor child or you buy a Real Estate in the name of your minor child by bringing in your money, in that situation the income arising from such Real Estate will be treated as your income.  However, for all those persons who are having a minor child I would like to recommend them that if they want to make the investment in the real estate in the name of their minor child, it is recommended that they should make such investment through the process of a hundred per cent specific Beneficiary Trust in the name of the minor child.  If this small little care is taken and after applying the principles of a very important leading Supreme Court of India’s decision in the case of M.K. Doshi, then in such a situation the income arising from such property will not be clubbed with the income of the father or mother.  Hence, if you are contemplating to plan of buying a property in the name of your minor child for his safety and security, in that situation buy the property by creating a hundred percent specific Beneficiary Trust of the minor child. 

When we talk of making Real Estate investment in the name of the wife and the children in particular, it is strongly recommended that each family should try to achieve the objective of making investment in Real Estate by having a theme of buying a plot of land.  If you invest today in a plot of land, a large number of advantages can be secured by you.  Firstly, the biggest advantage is that today you have invested in such an asset namely the plot of land which brings no money for you but it is going to be of great advantage to you in the years to come because the appreciation of the plot of land will be unprecedented as the time passes out.  I would like to recommend that the best thing for you would be to think of making Real Estate investment in the name of your wife and children in the form of buying a piece of plot of land, invest today, relax now and have a bright future ahead for your investment.

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