Jigar M. Patel
International Tax Attorney
Best of Both ~ HRA Exemption & Deduction of Interest
Query: My Basic Salary amounts to Rs.7 lakhs per annum. I am having my self-owned house at my native place at Rajkot, which is lying vacant on account of my recent posting at Baroda. Since I am staying in a rented house at Baroda paying an annual rent of Rs.1,40,000 and I am receiving HRA of Rs.50,000, my questions are as under:
- Can I continue to avail benefit of deduction of interest paid on housing loan for my house at Rajkot, though I am not physically occupying the same?
- Can I also claim the benefit of exemption in respect of the HRA received by me, although I am the owner of one residential accommodation?
Reply: Fortunately, you can claim both the benefits without any difficulty. According to Sec. 23 read with Sec. 24, where a residential house cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him and such house is not actually let out and no other benefit therefrom is derived by him, the annual value of such house would be taken as NIL and he can avail of the deduction for interest on housing loan.
As regards the exemption for HRA, since the rent paid by you at Baroda in excess of 10% of your Basic Salary & DA (1,40,000 – 70,000 = 70,000) is higher than the amount of HRA of Rs.50,000 received by you, the entire HRA will be exempt under Sec. 10(13A).
Explanation to Sec. 10(13A) prohibits exemption for HRA received in respect of a residential accommodation owned and occupied by the taxpayer. However, since the house occupied by you at Baroda in respect of which you are in receipt of HRA is not owned by you and the Rajkot house though owned by you is not occupied by you and you are not getting any HRA for the same, the above restriction will not come in your way.
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 of Rs.10 lakhs and HRA of Rs.4 lakhs apart from other taxable perks and allowances worth Rs.3 lakhs. 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, earning taxable income of around Rs.1,50,000?
Reply: You would be eligible to claim exemption in respect of HRA under Sec. 10(13A) on the basis of the least of the following three amounts:
- Annual rent paid in excess of 10% of your basic salary, that is Rs.3,80,000 (4,80,000 – 1,00,000).
- HRA received from your employer, that is Rs.4 lakhs.
- 40% of your Basic Salary, that is Rs.4 lakhs.
Thus, out of the HRA of Rs.4 lakhs received by you, Rs.3,80,000 can be claimed exempt, on which you can save Income-tax of Rs.1,18,560 at the rate of 31.20%.
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 lakhs in the case of Super Senior Citizens, he would not attract any tax liability on his taxable income. With the rent received by your father remaining tax free and your own tax saving, it would be a win-win situation for your family!
