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

Save Tax With Mutual 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       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

Buying a Used Car

Invest in Mutual Funds Online Download Mutual Fund Application Forms   Pre-owned car can make sense in these inflationary times. But buying one can be trickier than getting a new vehicle    If you are thinking of buying a car but are worried about the rising inflation and higher EMIs eating into your budget, you should consider buying a used car. For those learning to drive, the general advice is that they should hone their driving skills in a used car. However, buying a used car is not an easy task. Though a used car costs less, there are a lot of aspects to be considered while buying one. You should do your due diligence before buying such a car. For example, two cars of the same model would carry two different prices. The difference in price could be on account of the age of the car, how many people have driven, etc. First Fix Your Budget Since used cars are available in a wide variety of models and prices, the starting point would be to determine your budget befor...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Debt Mutual Funds Best Fixed Income Investments

Debt Mutual Funds - Invest Online     In the last one year, except for a select few sectoral funds and small cap funds, not many of the equity funds have given great returns. On the other hand, debt funds have done relatively well in terms of returns. So far in the new year too, the stock market has been extremely volatile, pushing investors to look for safer havens. In this context, debt funds are looking safer bets for those investors who do not have the appetite for higher level of volatility. Investors who look for a regular income stream, also look at fixed income products like debt funds, bank fixed deposits and post office monthly income schemes.  Among the fixed income products, debt funds score over others because of chances of higher return, has nearly similar level of risks and liquidity. According to Shah, people looking for regular income could opt for a systematic withdrawal plan (SWP) in debt funds , which, if done judi ciously could also save on taxes. Shah explaine...

Diversification is key to gain more

Even those who prefer debt for its safety are looking at more options    It is not often that you find more than a couple of asset classes producing good returns at the same time. Invariably, assets such as gold and equity don't perform in tandem, and hence it was easier to allocate to them in line with the risk profile of the investors. In the last couple of quarters, however, more than one asset has turned attractive - gold, debt and equity. In line with the trend, you even have monthly income plans with a combination of more than two assets.    In the past, those who stuck to debt were a different class of investors who didn't wish to take risk with their money. The changing lifecycles and the growing integration of investment markets across the globe have pushed even individual investors to embrace the concept of asset allocation. Hence, you have individuals who were using debt to park profits being prepared to take advantage of other assets.    For instance, when the...
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