Skip to main content

HRA and Home Loan benefits

Among all income tax doubts, the issue of House Rent Allowance (HRA) going hand in hand with housing loan deductions seems to vex employees the most. Let's examine this.

Vinayak Rege, who is salaried, says his company doesn't allow deductions for HRA and housing loans simultaneously. There is no specific section number of the Income Tax Act that allows this. However, in I-T language, silence signifies approval. In other words, the Act need not expressly allow something – lack of express disallowance also signifies intention of approval.

DIFFERENT SECTIONS

HRA is dealt in 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 on this concept are many. Take, for instance, Section 80C (PPF, NSC, ELSS, etc) and Section 80D (medical insurance premium). Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere? On the other hand, take Section 80GG, dealing with deduction on rent paid where the taxpayer doesn't receive HRA. It specifically says 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 or profession. The section adds 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.

But 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, we need to examine Section 23(2) of the I-T Act. It says 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. In other words, it is not necessary that you have to be occupying or staying in the property; rather, the property should be meant for your occupation.

EXPLANATIONS

For those like Tarun Kapoor, who stays with his parents in a house belonging to his father, the question is, since having to pay rent is apre-requisite for the HRA deduction, can he pay rent to his father and claim the deduction? This can be done.

However, the rent paid by Tarun will be added to his father's income and taxed in his hands. Also, Tarun will have to furnish rent receipts to his employer as proof of having paid rent.

Note that this arrangement cannot be carried out in the case of the spouse. Married couples sometimes buy the house in either person's name. In this case, the other spouse cannot get away by paying rent to the owner-spouse, as husband and wife cannot have a commercial relationship with each other. At times, the 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 assumed to be meant as a tax evasion mechanism.

Last, there does exist a related provision that is less commonly known. However, this has not so much to do with HRA and the deduction on interest on home loans as it has with regard to the system of taxation on self-occupied property.

The annual value of one self occupied property is taken to be nil and the interest deductible is capped at ` 1.5 lakh. Also, as discussed above, such a property need not actually be occupied by the owner; it should be meant for self-occupation. However, this inability to occupy the property should arise by reason of the fact that the employment or business or profession is carried out at some other place.

So, assume Vikram, a taxpayer, owns a house but continues to reside with his parents, who live in the same neighbourhood. In other words, Vikram's own house is vacant not out of any professional or business compulsion but out of choice and personal convenience.

In such a case, the annual value of the self-occupied house will not be taken as nil. Instead, it will be deemed to be let out and the notional rent brought to tax. Consequently, the full amount of the interest on housing loan will be taxed ductible without any cap. Needless to add, if Vikram were to pay rent to his parents, the HRA deduction will continue to apply.

Popular posts from this blog

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

EPFO can pay 8.5% interest in 2009-10

THE Employees’ Provident Fund Organisation can comfortably offer 8.5% interest rate to its 4.41 crore depositors during 2009-10 and still record a surplus contrary to Rs 139-crore losses suffered by it for giving the same benefit during the current fiscal. The issue of return to the depositors would be discussed at a meeting of the ‘finance and investment committee’ (FIC) on Thursday, agenda for which lists that maintaining an 8.5% interest could still give the fund a surplus of Rs 6.4 crore on the investment made by the fund. If EPFO maintains the interest rate of 8.5% on PF deposits, there will be a surplus of Rs 6.4 crore at an estimated income of Rs 12,994 crore in 2009-10. In case the interest is raised to 8.75%, the fund would suffer a loss of Rs 366.77 crore and the deficit would be still higher at Rs 739.94 crore if the rate of interest is fixed at 9%. FIC gives recommendations on financial matters to the apex EPFO body Central Board of Trustees (CBT), which takes the final ...
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