The authors may be contacted at wonderlandconsultants@ yahoo. com In the wonderland of Investment A N Shanbhag IF Vikram were to pay rent to his parents, the HRA deduction will continue to apply
Among all income tax doubts that ari
se in general, the issue of House Rent Allowance ( HRA) going hand in hand with housing loan deductions seems to vex employees the most.
R S Kamat says his company doesnalt39t allow both deductions simultaneously, so could he have the specific section number of the Income Tax Act ( ITA) that allows this? Well, am afraid that isnalt39t possible since in income tax language silence signifies approval. In other words, the ITA need not expressly allow somethinglack of express disallowance also signifies intention of approval. HRA is dealt with by Sec. 10( 13A) read with Rule 2A. Interest on housing loan is deductible under Sec. 24.
Nowhere does it say either in Sec. 10( 13A) or in Sec. 24 that the two are mutually exclusive. Examples of this concept are many. Lets take for instance Sec. 80C ( PPF, NSC, ELSS etc.) and Sec.
80D ( medical insurance premium).
Everyone will agree that both Sec. 80C and Sec.
80D can be separately claimed. But does it expressly say so anywhere? On the other hand, Sec.
80GG dealing with deduction on rent paid where the taxpayer doesnalt39t 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 or profession.
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. Senthil has a good question.
He says 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. In other words, a person cannot be at two places at one time or how can a property be self occupied when the occupant is actually occupying another rented property? To resolve this dilemma, we need to examine Sec.
23( 2) of the 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. 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.
Narayanan on the other hand stays with his parents in a house belonging to his father. He asks that since having to pay rent is a prerequisite for the HRA deduction, can he pay rent to his father and claim the deduction? Yes, this can be done. However, the rent paid by Narayanan will be added to his fathers income and taxed in his hands. Also, Narayanan 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. Married couples sometimes buy the house in any one persons name. In this case, the other spouse cannot get away paying rent to the owner spouse, as husband and wife cannot have a commercial relationship with each other.
On similar lines, some querists 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.
Lastly, there does exist a related provision that is less commonly known and also hitherto not been discussed.
However, this has not so much to do with HRA and the deduction on interest on home loans as i
