Mukesh Patel.in
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international tax expert / columnist / author / speaker

PLANNING FOR HRA EXEMPTION!

If you are staying in a house belonging to your father, you can plan a win-win tax situation for both of you!

    AM Tax Clues today deals with some interesting readers’ queries on House Rent Allowance (HRA) exemption and 80C deduction for stamp duty on house property.

HRA EXEMPTION FOR RENT PAID

Query:  My family is living jointly with my parents in a residential bungalow owned by my father at Ahmedabad.  My company pays me, annually a basic salary and DA of Rs.8,00,000 and HRA of Rs.4,00,000, apart from other taxable perks and allowances worth Rs.3,00,000.  If I pay a fair rent of Rs.40,000 per month to my father, can I claim any benefit of HRA exemption? What would be the tax liability for my father, who is a Super Senior Citizen, aged 81 years, earning taxable income of around Rs.1,50,000?

Reply:  You would be eligible to claim exemption in respect of HRA under Section 10(13A) on the basis of the least of the following three amounts:

  • Annual rent paid (Rs.4,80,000) in excess of 10% of your basic salary and DA (Rs.8,00,000), that is Rs.4,00,000 (4,80,000 – 80,000). 

  • HRA received from your employer, that is Rs.4,00,000.  

  • 40% of your Basic Salary & DA (Rs.8,00,000), that is Rs.3,20,000.

    Thus, out of the HRA of Rs.4,00,000 received by you, Rs.3,20,000 can be claimed exempt, on which you can save Income-tax of Rs.98,880 at the rate of 30.9%, since you fall in the top tax bracket of 30.9%

    In your father’s case, from the amount of rent of Rs.4,80,000 received by him, he would be entitled to a standard deduction of 30% amounting to Rs.1,44,000 and hence his taxable rental income would be Rs.3,36,000. Keeping in view the exemption limit of Rs.5,00,000 in the case of Super Senior Citizens above the age of 80, he would not attract any tax liability on his taxable income of Rs.4,86,000 (3,36,000 + 1,50,000). With the rent of Rs.4,80,000 remaining tax free with your father and your own tax saving of Rs.98,880 it would  be a win-win situation for your family!

STAMP DUTY TAX DEDUCTIBLE

Query:  I have recently purchased a residential house for Rs.25,00,000 and incurred stamp duty and registration fee expenses of around Rs.1,50,000.  I have also taken a housing loan of Rs.15,00,000 from my employer being a public company.  Under the terms of the loan, starting from next year, I have to annually repay Rs.2,50,000 towards principal and interest on the loan.  What tax benefits can I avail in respect of the above?  My estimated taxable income for FY 2012-13 is Rs.12,00,000.  

Reply:  Under the provisions of Section 80C, any payment made for stamp duty and registration fee for purchase or construction of a residential house is fully tax deductible within the overall limit of Rs.1,00,000. You should therefore be in a position to claim the Rs.1,00,000, out of the stamp duty paid being Rs.1,50,000, as a deduction from your taxable income and effectively save tax of Rs.30,900 considering your marginal tax rate of 30.9%.  

From the next year onwards, you can also claim deduction under Section 80C (within the overall limit of Rs.1,00,000) in respect of the repayment of the principal amount of housing loan. As regards the actual interest payable on the housing loan, you would be further eligible to claim the same under Section 24, within the separate ceiling of upto Rs.1,50,000. Since your taxable income is Rs.12,00,000 and you are in the maximum tax bracket of 30.9%, you should be in a position to save tax at 30.9% of the eligible deductions as referred above.

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