Know the tax benefits of house rent
Rent paid to one's wife is eligible for exemption if property, home loan are in her name
Oct 23, 2013
Source : Business Standard

 

MUMBAI: As the real estate prices in metro cities continue to remain high, many salaried individuals either prefer or are compelled to stay in rented houses. Many are postponing their decisions to purchase a house, given the increasing interest costs. In such cases, tenants should know the tax exemptions they can avail of by staying on rent.

Let us take an example. Abhijeet Khanna, a management graduate working with a multi-national company in Mumbai, recently got married to Khyati, a doctor. Khanna earns an annual basic pay of Rs 10 lakh. In addition, he is paid a House Rent Allowance (HRA) amounting to Rs 3.5 lakh and city compensatory allowance of Rs 1.5 lakh. Khanna does not own a house. However, Khyati is a doctor earning a net salary income of Rs 7.5 lakh plans to purchase one, for which she is considering taking a bank loan of Rs 60 lakh at an interest rate of 10 per cent.

Are there advantages of buying the property in Khyati's name? Should Khanna rent a flat or stay in the flat to be purchased by Khyati and pay her rent of Rs 3 lakh per annum? Will Khanna stand to gain if he pays rent to his own wife?

There are certain taxes that Khanna can save in such a situation, subject to certain conditions.

House rent allowance

Most salaried people receive HRA as part of the compensation structure. A salaried taxpayer is eligible to claim HRA exemption under section 10 (13A) of the Income-tax Act, 1961 in respect of a residential accommodation occupied by him, except where the same is owned by him or he has not actually incurred the rent expenditure.

Accordingly, an HRA exemption is available for least of the following amounts:

    Actual HRA amount received from the employer;

    The amount of rent you pay for your house in excess of 10 per cent of your basic pay; or

    50 per cent of basic pay if you reside in a metro city and 40 per cent of basic pay for non-metro cities.

In a recent judicial precedent of Bajrang Prasad Ramdharani v/s ACIT, the Ahmedabad Income-tax Appellate Tribunal held that the exemption of HRA to the taxpayer husband was available for payment to his wife, who was the landlord and lived in the same house. In its decision, the Tribunal highlighted that for granting a claim of exemption, only use of the house by the taxpayer and payment of rent was mandatory.

Interest deduction

The wife can also claim deduction up to Rs 1.5 lakh towards payment of interest on the housing loan taken for a self-occupied property. However, where the property is let out as in the present case, entire interest paid would be allowed as a deduction.

While the savings on tax can be substantial, Khanna and his wife have to keep some things in mind:

   The income-tax slab and rate applicable to the landlord spouse should be lesser than the tax rate applicable to the tenant to enjoy a tax advantage

     The rental income should be appropriately reported in the tax return of the landlord spouse

      Income earned by the landlord spouse must not qualify for clubbing with the tenant spouse under the relevant income-tax provisions. Even for wealth tax, wealth acquired by the wife from assets transferred by her husband could be clubbed with the wealth of the husband. Therefore, the wife must make personal contributions to acquire loans towards the purchase

  

    Banks insist registration of the property in the name of the person applying for the loan and demonstrating capability of discharging the monthly instalments

         Appropriate documentation in terms of a proper rent agreement, rent receipts, bank accounts, etc must be maintained to reflect the independence and real nature of the transaction

Where the husband incurs business debt or loss, a house registered in the wife's name cannot be attached to cover the loss

Latest Realty News

Businessman booked for selling land with forged documents
Oct 23, 2013
AURANGABAD: The Satara police have booked a city-based businessman for allegedly selling a piece of land admeasuring four gunthas located at a prime location in the outskirts of Satara to a Jalna businessman by forging documents of the land.
Opt for Tingre Nagar, for apartments priced Rs 20-40 lakhs
Oct 23, 2013
PUNE: If you have a budget of Rs 20-40 lakhs and you are looking to invest in the eastern suburbs of Pune, then Tingre Nagar could provide you with a number of options. Tingre Nagar, which has a large number of properties available within this budget, is ideal for home buyers who cannot afford nearby locations such as Viman Nagar, Koregaon Park and Kalyani Nagar, where the property prices are relatively higher.
Mira-Bhayander stretch on a high, appreciation expected
Oct 23, 2013
MUMBAI: Prices of residential properties on the Mira-Bhayander stretch – the suburban location in Thane district, have doubled in the past three years on the back of growing connectivity and infrastructure and there is scope for further appreciation in the near future. The locality is administered by the Mira-Bhayander Municipal Corporation (MBMC). A 1,000-sq ft apartment in a multi-storeyed building is available in the range of Rs 75-80 lakhs at present.
Property owners oppose Greater Mumbai civic body’s tax formula
Oct 23, 2013
MUMBAI: Mumbai-based Property Owners Association is going to challenge the Municipal Corporation of Greater Mumbai’s recently revised basis and method of property tax computation
LIC HFL reduces home loan rates by 0.25%
Oct 23, 2013
MUMBAI: Housing finance company LIC Housing Finance (LIC HFL) today said it has reduced home loan rates by 0.25% with effect from October 15.
NSEL accused face attachment of property
Oct 23, 2013
MUMBAI: National Spot Exchange Ltd’s promoters, directors and defaulters now face attachment of movable and immovable properties from the economic offences wing (EOW) of the police here, in connection with the Rs 5,600-crore payment disputes case.
Poor quality retail space affecting retail real estate: Experts
Oct 22, 2013
MUMBAI: The poor quality of retail space, regulatory issues and subdued economic growth are holding back international retailers from expanding their presence in the country, say experts.
22nd property expo comes to an end
Oct 22, 2013
MUMBAI: Deepak Vasantrao Kesarkar – Member of Legislative Assembly, Govt of Maharashtra visited the MCHI-CREDAI 22nd Real Estate and Housing Finance Exhibition earlier today.
Kalpataru Group, Oberoi Realty, Runwal Group and Lodha Group in final lap for Clariant's plot
Oct 22, 2013
MUMBAI: Speciality chemicals maker Clariant Chemicals has shortlisted four Mumbai-based real estate developers for selling its 87-acre land parcel in Thane, three people familiar with the development said.
Bombay High Court tells Centre, FMC to inform whether they can regulate NSEL
Oct 22, 2013
MUMBAI: The Bombay High Court today asked the Union Ministry of Consumer Affairs and commodities regulator Forward Markets Commission (FMC) to inform it if they had powers to regulate the scam-hit National Spot Exchange Ltd (NSEL), by Friday.

Latest Realty News Of State

Realty Talk's