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Question ID : 41063

Rental income in a Partnership firm on properties owned by partners

There are 2 NRI's holding a piece of land and are willing to construct a residential/commercial complex with an intention to earn rental income. Construction is carried out partially with own funds and partially using a bank loan. As per RBI Master Direction on FDI... this activity is permitted as it is specifically excluded from definition of real estate. IS this interpretation correct ? Now they want to have a partnership firm wherein there will be 3 partners out of which 2 of them will be the NRI and 1 Person will be a Resident. The objective of the partnership firm shall be to receive the rental income on such constructed complex. The objective of firm shall be leasing of property. Questions : Can partnership firm receive rental income from the property owned by its partners? what are the other / better ways to execute this ? Citation of any section/circular/case law will be very much useful. Thanks a lot

Posted by SRIMANTH KULKARNI on Jun 02, 2021

Filed Under Compliance

Answer ID : 81153

The activity is barred for non residents but not for non resident Indians. They have become non resident due to there stay in India for lesser time frame as prescribed to become a Resident. So if they complies that condition they can become resident at the same moment in time he/ she complies the conditions. Further there is no need of forming a partnership firm for simply collection of rent as the property shall not be owned by the partnership firm. It is better to form an LLP for maintenance of the property and collection of rent to whom owners will impart management fees. However the expenses incurred will be covered under 30% standard deduction against the rental income. Only benefit will be from the LLP that owners shall get the benefit out of the share of LLP. However that shall be also the getting your money kept from one pocket to another pocket.

Posted by CA. JHA SHANKAR KUMAR on Jun 04, 2021