House Rent Allowance
Querist :
Anonymous
(Querist) 26 December 2009
This query is : Resolved
Whether a person is entitled to get exemption under section 10(13A) if he resides in a rented house at a place far from his newly purchased residential flat for which he is entitled to get deduction under section 24(b) as Interest on HBL and deduction under section 80C for repayment of HBL. The new residential house is being occupied by the members of his family and he, who is in receipt of HRA, is residing in a rented house due to his employment.
Dr.Anjani Kumar Vaidyasen,09431271130,Patna
(Expert) 26 December 2009
It is a fact that you cannot avail twins deduction at atime so either you opt the first category for deduction of HRA from you gross income or may choose other option like deduction of HBL interest from your gross income.Please contact to the tax lawyers with all supporting documents and get advice.
thanking you.
A V Vishal
(Expert) 26 December 2009
AT the outset, let me clarify that there is no direct relationship whatsoever between claiming HRA tax exemption and claiming tax breaks on home loans (interest deduction under section 24(b) and principal repayment under section 80C). There are separate provisions in the income tax Act, 1961, for each of the two and one does not influence the other. Depending upon the particular facts and circumstances, you may or may not be able to claim both the benefits.
For claiming HRA tax exemption under section (u/s) 10(13A) of Income Tax Act, 1961, read with rule 2A of Income Tax Rules, the only condition is that you should be living in a rented accommodation for which you should be paying rent. Now, if you stay in your own house, you can’t pay rent to yourself and therefore the whole of the HRA received by you becomes taxable.
However, there still remains a possibility that even if you own a house, you stay in a rented accommodation/any other accommodation. It can be due to following reasons:
1. You've rented your own house while you stay in a rented accommodation
In such a case you'll be entitled for HRA tax exemption. However, rental income from your own house will be taxed in your hands while allowing interest deduction under section 24(b) and deduction for principal repayment under section 80C.
2. Your own house remains unoccupied while you stay in any other accommodation due to employment/business/profession reasons
You may stay at a place – it may be a different city or a different location within the same city - different from the place where your own house is situated.
Here there are two possibilities:
a. Rented accommodation i.e., you're paying rent
In this case, you can claim HRA tax exemption while your house will also be treated as self occupied house property for purpose of income tax and you'll get all the housing loan tax benefits i.e., both interest deduction u/s 24(b) and principal repayment under section 80C.
b. Non-rented accommodation i.e., you're not paying rent As the rent is not being paid, the question of HRA tax exemption does not arise. However, your house will be treated as self-occupied and you'll get the housing loan tax concessions (i.e., interest deduction under section 24 and deduction for principal repayment under section 80C).
3. Your house remains unoccupied while you stay in any other accommodation due to any other reason whatsoever (other than professional/employment/business reasons)
Here again, there are two possibilities:
a. Rented accommodation i.e., you're paying rent
In such a case, although you'll be entitled for HRA deduction, your own house loses the status of self-occupied property and will be treated as deemed to be let out, and thus its notional rental income will be taxable in your hands.
b. Non-rented accommodation i.e., you're not paying rent for instance, for your personal convenience you live with your parents in their house while your house remains unoccupied. Here, if you don’t pay any rent, you're not entitled for HRA deduction.
Further, your own house won’t be treated as self-occupied for tax purposes.In other words, your own house will be treated as deemed to be let out and its notional rental income will be taxable in your hands.
However, irrespective of tax status of house i.e., whether self-occupied/deemed to be let-out/let-out, you'll continue to get the interest deduction on home loan under section 24(b) and deduction for principal repayment under section 80C.
4. The new house is not in your name. It belongs to any of your relative (spouse/parent’s) and you actually pay rent to the owner of the house.
In such a case also you'll be entitled for HRA tax exemption but the owner of the house who may be your spouse or parent(s) is assessable for the rental income derived from the house. Also, remember that it should a genuine transaction and not a colourable device to evade tax.
However, there is a difference of opinion among tax experts regarding payment of rent to spouse. According to one opinion, there is nothing wrong in paying rent to a spouse so long as it is not a sham transaction. The other view is that there can’t be any commercial transaction between husband and wife.
In a nutshell, if you've a house, either stay in it or rent it out. Don't leave it vacant. In case you have to leave it vacant, it should be only for employment/business/professional reasons. Even in such a case you should be either living in a different city or at different place within the same city, and not in the immediate vicinity of your house (i.e., the location where you stay should be at a considerable distance from your own house). Otherwise, notional rental income of your house (even if it is the only house you own) becomes taxable in your hands although you continue to get the interest deduction on housing loan u/s 24(b) and deduction for principal repayment of loan u/s 80C.
Furthermore, as regards the HRA, you will be getting the tax exemption under section 10(13A) so long as you are staying in a rented accommodation and actually making the rent payment, irrespective of whether you are having your own house(s) or not.
Vineet
(Expert) 27 December 2009
Thanks Vishal for correcting your stand which was different in earlier querries on identical issue.
The Answer to this query:
1. You can claim HRA exemption irrespective of the fact that you own any house or not. The only condition is that you should be paying rent for accommodation.
2. You are entitled for deduction in respect of interest payment and repayment of principal loan amount in respect of any number of owned houses under sections as mentioned by you. You can claim only one owned residential house as self occupied irrespective of the fact whether you or your family members are staying in it or not (of course the same should not be actually rented out) and the Rental income from such house shall be treated as nil. for the rest of the houses, even if they are not rented, they are treated as deemed let out.
A V Vishal
(Expert) 27 December 2009
Which case Mr Vineet, Opinions do change on basis of each case, since no two cases have the same grounds or facts. My opinion here is based on the circumstances in the instant case and I have not corrected any stand and in future my opinion may change again based on the grounds in that case, it is all how I plan to represent the client.
Querist :
Anonymous
(Querist) 27 December 2009
Thank You Mr. Vineet and Mr. Vishal for your kind and valuable suggestion.
Vineet
(Expert) 28 December 2009
First of all, nobody can be forced to earn income and pay tax on the same unless there is specific deeming provision for such income in the Act.
So I disagree with all the experts above that a single house can be treated as deemed let out in any circumstance. It is only the second house and more which are treated as deemed let out if they are actually not let out. Hence no income can be forced on the assessee in repect of single house which is not rented in any circumstance and whatever the facts of case may be.
As far as deduction of interest paid on housing loan and u/s 80C for repayment of principal is concerned the same is allowable in all circumstances subject to following limitations:
1. Upto Rs 1.5 Lakhs in respect of self occupied house which is not treated as deemed let out (zero rental income)
2. Interest upto such amount which results in zero net income (no loss) in respect of deemed let out property (property not actually let out, lying vacant or self occupied other than one property treated as SOP at assessee's option)
3. Actual interest in respect of let out property
Coming to exemption for HRA, the same is allowed under a different section for computation of income under a different head and there is absolutely no relation of such exemption vis a vis ownership of residential house. The only requirement is that the employee should actually pay rent for an accomodation at the place of work.
So I don't see any need for threadbaring or anlysing different situations as there is no relation between the two streams of income.
I hope this helps.
Pradeep
(Expert) 09 December 2014
I have a different scenario here, related to house rent allowance. I am paying a rent of above 17,000 per month. I need to provide my landlord's PAN in such case, which means landlord will be assessed for such income. for obvious reasons, my landlord does not want to give his PAN.
Now, My dad (not an assessee for IT) enters into Rental agreement with my Landlord for 5,000 Rs per month and he sublets that house to me for 17,000 Rs.
Question: Isn't it still legal for me to show my dad as my landlord and provide his PAN ?
(I am only exploring a loophole in the law that does not state that person whom you are paying rent need to own the house)
