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

ICICI Prudential Dynamic Plan Invest Online

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   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...

ICICI Lombard to provide weather cover in 10 states

ICICI Lombard General Insurance Company has been given the mandate to provide weather-based crop insurance for rabi season (2010-11) in Madhya Pradesh, Bihar,Tamil Nadu, Karnataka, West Bengal, Chhattisgarh, Jharkhand and Himachal Pradesh.    The insurance company will cover 69 districts — 30 loanee districts (farmers who have taken loans) and 39 non-loanee districts. The major crops that ICICI Lombard covers for the season are winter paddy, cotton, wheat, mustard, barley, maize, onion, potato, tomato, lentil, peas, arhar, jowar, fenugreek, coriander, cumin, methi, isabgol, brinjal among other crops.    Weather-based crop insurance provides cover against weather-related risks such as excess or deficit rainfall, variations in temperature and fluctuations in humidity. This scheme facilitates immediate compensation based on certified data collected from independent third party bodies such as Indian Meteorological Department ( IMD ) and National Collateral Management Services Ltd. ( NC...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

Lump Sum or SIP?

Invest Mutual Fund Online     You have a lump sum in hand and you wish to invest in equity funds. However, you have heard a lot of talk about investing in equity funds through Systematic Investment Plans (SIPs) because they help average costs, ensure you do not ill-time the market, and help you invest in small sums, besides giving you many other advantages. So, should you invest the money you have in hand in one go, or let it remain in your bank account and then do an SIP? There is no harm in investing a lump sum amount. For all you know, compounding, over the long term, could work better with lump sum. However, make sure you fulfill all of these three criteria if you want to invest in one go. Else, SIP is the way to go. #1: You invest for the long term According to past data, ideally, if you have a time frame of 12 years or more, you can consider lump sum investing (provided you satisfy the other two conditions that follow). So, what is the sanctity behind 12 years? Is it because only...

Financial Planner - Do Integrity & Dependability Check

How does one can find value proposition when it comes to financial planning, which is a new area? There is nothing to benchmark it with. So, how does one figure what is the right fee to pay? Look at what you want. You probably want to hire a financial planner to get a blueprint for your life ahead and want to know how to achieve your goals. For creating a tailor-made financial plan, our experience is that it takes 25-30 man-hours in all. Taking an average of Rs 500 per hour for hiring the services of a qualified financial planner like one who has a CFP(CM) certificate, the fee would come to Rs 12,500 to Rs 15,000. But the per-hour rate can be higher or lower depending on the process adopted, the experience and expertise of the planner, etc. That's how planners arrive at their fee. Now, is that value for money? For that you need to find out what benefits you would derive by engaging them. The financial plan will give you clarity, direction and pathway to achieve your goals. Th...
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