Skip to main content

If you pay rent to your parents, you can claim a deduction


The most common request is to do with the specific section of the Income-Tax Act (ITA) that allows this. Well, I am afraid that isn't possible since in income-tax language, silence signifies approval. In other words, the ITA need not expressly allow something — lack of express disallowance also signifies intention of approval.

HRA is dealt with by Section 10(13A) read with Rule 2A. Interest on housing loan is deductible under Section 24. Nowhere does it say either in Section 10(13A) or in Section 24 that the two are mutually exclusive. Examples of this concept are many. Let's take, for instance, Section 80C (PPF, NSC, ELSS etc) and Section 80D (medical insurance premium). Everyone will agree that both sections can be separately claimed. But does it expressly say so anywhere?

On the other hand, Section 80GG dealing with deduction on rent paid where the taxpayer doesn't receive HRA, specifically mentions that the taxpayer or his or her spouse/ minor children should not own any residential accommodation where the taxpayer resides, performs the duties of his office or employment or carries out his business.

The section goes on to further add that if the taxpayer owns accommodation at a place other than that mentioned above, the tax deduction in respect of self-occupied property (annual value to be taken as nil) should not be claimed by him. This is express denial. No such provisions exist in respect of HRA.

Another point raised is that the deduction of HRA going hand-in-hand with that on self-occupied property seems paradoxical as an employee staying in a rented house, by definition, cannot live in a self-occupied property. To resolve this dilemma, we need to examine Section 23(2) of ITA.

As per this section, the term "self-occupied property" includes property that cannot be occupied by the owner owing to his employment, business or profession carried on at any other place in a building not belonging to him. Thus, it is not necessary that you have to be occupying or staying in the property, rather, the property should be meant for your occupation.

To spouse is not allowed
Some readers have inquired whether it is possible to pay rent to one's parents. Yes, this can be done. However, the rent paid to the parent will be added to parent's income and taxed in his or her hands. Also, the taxpayer will have to furnish rent receipts to his employer as proof of having paid rent. Note that this arrangement however cannot be carried out in the case of the spouse, as husband and wife cannot have a commercial relationship with each other.

On similar lines, some readers have written in asking whether rent may be paid to a parent where the property is jointly owned by the taxpayer and the parent. Such a transaction, though theoretically feasible, will be in form and substance assumed to be meant as a tax evasion mechanism and hence, not advisable.

An important bit
Lastly, there does exist a related provision that is less commonly known and also hitherto not been discussed. This is to do with regards to the system of taxation of self-occupied property.
Readers would know that the annual value of one self-occupied property is taken to be nil and the interest deductible there under is capped at Rs 1.50 lakh.

Also, as discussed above, such property need not actually be occupied by the owner, rather it should be meant for self occupation. However, this inability to occupy the property should arise by reason of the fact the employment or business or profession is carried out at some other place.

For example, suppose Sanjay owns a house but continues to reside with his parents who live in the same neighbourhood. In such case, Sanjay's house is vacant not out of any professional or business compulsion but out of choice and personal convenience. Here, the annual value of the self-occupied house will not be taken as nil — it will be deemed to be let out and the notional rent will be brought to tax.

Consequently, the full amount of the interest on housing loan will be tax deductible without any cap. Needless to add, if Sanjay were to pay rent to his parents, the HRA deduction will continue to apply.

 

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

Stocks with a high dividend yield

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India) Stocks with a high-dividend yield can provide investors additional cash flow. More importantly, it is tax-free   With April 2011 just over, the 'earnings season' is well and truly here. This is the time most companies pay out a portion of their profits as dividends to shareholders. Since dividends are tax-free, they are an attractive income source with a select class of investors, who depend on these for additional cash flow. SIGNIFICANCE A company doing well and generating profits will usually be in a position to declare dividends regularly. Hence, a key parameter one should look at whilst investing in a stock is whether the company has a good dividend record. Typically, dividend yield stocks are large-caps and generally not capital-intensive. This is suggestive of the fact that the downside risk on...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now