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

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund

NPS in Budget 2017

There is something to cheer for NPS subscribers in the fine print of the budget speech 2017. The budget has given clarification on those partial withdrawal norms  (which came into effect from June 2015) and brought parity between  salaried individuals and the self-employed in terms of tax benefits. The budget 2017 has clarified that NPS subscribers are allowed to make partial withdrawal of up to 25% from the contributed amount. This option is allowed for subscribers having contribution in account for at least 10 years. However, NPS subscribers can only withdraw for higher education or marriage of their children, construction or purchase of first house and treatment of specific ailments like cancer, kidney failure, paralysis etc. PFRDA has stipulated a gap of minimum five years between withdrawals. Also the maximum number of withdrawals allowed is three. However, there is no such limit if withdrawal is made for illness. Earlier, there was  confusion a...
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