[ecis2016.org] We examine the laws relating to acquisition and disposal of an immovable property by a minor, as well as the income tax provisions with respect to its ownership by a minor
Acquisition of immovable property by a minor
A minor can acquire an immovable in various ways. He can acquire it by way of inheritance, either through a will or through the intestate succession law as per the religion of the minor. A minor can also acquire an immovable property by way of gift. A minor is not competent to contract as per the Indian Contract Act, 1872 but as per the provisions of the Transfer of Property Act, 1882, a minor can accept a gift of an immovable property, without the intervention of his guardians. From a practical point of view, as the agreement for the transfer of any immovable property needs to be registered, as per the provisions of the Registration Act, 1908 and since any gift has to be accepted by the donee to make it effective, it is advisable that the gift is accepted by the natural guardian of the minor on behalf of the minor, to avoid any hassle with the registration authorities. While, legally, a minor can sign the gift deed of immovable property, this suggestion is made from a practical point of view, to avoid delays in registration of the property.
Although a minor can accept an immovable property as a gift, any onerous gift, which carries some liability, cannot be made binding on a minor. However, if the minor acquiesces to the onerous gift after becoming competent to contract, either expressly or by conduct, he cannot repudiate the gift later on.
In case the minor receives a gift of property whose value exceeds Rs 50,000, the market value of such property may be treated as income of the minor, in the year in which the property is transferred. However, in case the gift is received from certain specified relatives like parents, maternal and paternal uncles and aunts, as well as grandparents, the gifts are fully tax-free in the hands of the minor.
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A minor can also acquire immovable property out of his own funds. Any agreement for the purchase of an immovable property, has to be executed by his natural or legal guardian on behalf of the minor, as the minor is not competent to contract. While acting on behalf of a minor, the guardian has to act in utmost faith, for the benefit of the minor.
Taxation of income from immovable property owned by a minor
As a minor is allowed to inherit, buy or receive a gift of an immovable property, he is logically entitled to retain and enjoy the fruits of the immovable property. Under the income tax laws, a person is allowed to have two house properties as self-occupied, for which the taxable value for income tax purposes is taken as nil.
So, if any immovable property is used by the minor or his family members for their own residence, no income is presumed to have arisen from the same. The property owned by a minor can also be let out, through his guardians. For a let out property, the rental income is taxable after deduction of 30% of the rent received as standard deduction. As minors generally do not have any active income, the probability of a minor getting a home loan, is low. However, if the minor has borrowed money for the purchase, construction, repair or renovation of a property, he is entitled to claim tax benefits on such money borrowed.
Any passive income of a minor, computed as per the provisions of the Income Tax Act, is required to be clubbed with the income of the parent whose income is higher and will continue to be so added, till the assessing officer directs otherwise. Consequently, the rental income or capital gains with respect to a property owned by the minor, has to be clubbed with the parent’s income, after allowing the deductions and exemptions available. The income of the minor is exempt up to Rs 1,500 per year, under Section 10(32) of the Income Tax Act. So, any income above this, will be added to the income of the parent.
Sale and disposal of immovable property owned by a minor
As per the provisions of the Hindu Minority and Guardianship Act, 1956, any property or share in property owned by a minor, cannot be sold or disposed of by the natural guardian of the minor, without taking permission from the court. For obtaining the permission, the guardian of the minor has to make an application before the district court. Any sale of a property owned by the minor by the guardian, without the permission of the court is voidable at the option of the minor on becoming a major. The fact that the sale of the property was made for the benefit and meeting the cost of maintenance of the minor, will not make the sale ipso facto legally valid.
The Hindu Minority and Guardianship Act, 1956, restricts the natural guardian from mortgaging, charging, selling, exchanging or gifting any part of the immovable property of the minor, without the permission of the court. The natural guardian also has to obtain the permission of the court, for leasing out the property owned by the minor to any person. This position has been confirmed by the Supreme Court in the case of Saroj v/s Sundersingh. To clarify, any deal of property owned by a minor is not illegal or void ab-initio but is voidable at the option of the minor becoming an adult and the same can even be repudiated by any person representing a minor. So, when you buy, or even take on lease, a property that is owned by a minor, ensure that the necessary permission from the court has been obtained by the natural guardian of the minor, to avoid any complications in future.
(The author is a tax and investment expert, with 35 years’ experience)
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