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| Edited By: Sandeep Shanbhag |Source: |Updated: Sep 15, 2017, 02:42 AM IST
The Income Tax Act doesn’t say that the two benefits can’t be availed together
I confess I am slightly uneasy writing today’s column as I fear being accused of repetition. Regular readers would know that over the past few weeks, I have been dealing with various issues and concepts related to taxation and return-filing with special emphasis on one topic — house rent allowance (HRA) and its co-existence with tax deduction on home loans. However, reader feedback forces me to take up this topic yet again.
Among all income tax doubts that arise in general, the issue of HRA going hand-in-hand with housing loan deductions seems to vex employees the most.
Vinayak Salvi says his company doesn’t allow both deductions simultaneously, so could he have the specific section number of the Income Tax Act (ITA) that allows this? Well, I am afraid this 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 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. Let’s 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 doesn’t receive HRA, specifically mentions that the taxpayer or his or her spouse or 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 provision exists in respect of HRA.
Setukumar has a good question. He says 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 should be occupying or staying in the property. Rather, the property should be meant for your occupation.
Dipesh Bhatia, on the other hand, stays with his parents in a house belonging to his father. His question is, since having to pay rent is a pre-requisite for the HRA deduction, can he pay rent to his father and claim the deduction? The answer is yes. However, the rent paid by Dipesh will be added to his father’s income and taxed in his hands. Also, Dipesh 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 a house in any one person’s 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 asked if rent can be paid to a parent where the property is jointly owned by the taxpayer and the parent. Such a transaction, though theoretically feasible, will in form and substance be assumed to be a tax-evasion mechanism and hence not advisable.
Lastly, there is a related provision, which is less commonly known and also hitherto not discussed. However, this doesn’t have much to do with HRA and the deduction on interest on home loans. This is with regard to the system of taxation of self-occupied property.
Readers would know that the annual value of a self-occupied property is taken to be nil and the interest deductible thereunder 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.
But, suppose 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 but 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 Vikram were to pay rent to his parents, the HRA deduction will continue to apply.
