To claim HRA deduction, one should be paying rent

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: I came to know, for the first time that I can claim for HRA even if I am living in my own house, which I am paying home loan installments for.

However, I couldn't understand from where I will get the rent receipts to show against the HRA.

Is there any alternative process to claim HRA when I own a home?

I will be very thankful to you if you can clear these points.

—Sunny Tambi

The basic principle behind claiming HRA deduction is that you ought to be paying rent. In other words, without paying rent, you cannot get deduction on HRA. In your case, since you live in a house owned by you, there is no question of paying any rent or producing any rent receipts. Therefore, the full amount of HRA being paid to you will be taxable.

I plan to switch my investment in mutual funds from dividend payout-plan to growth-plan under the same scheme. Will this switching be treated as:

(a) Redemption of the original investment in dividend plan and fresh investment in growth plan involving LTCG / STCG, or

(b) It will not attract LTCG / STCG.

—Satish Chandra

Conversion of a scheme paying regular dividends to a growth scheme is considered a transfer and consequently, this transaction attracts the provisions of capital gains.

Only the conversion of regular dividends to a dividend reinvestment plan is not considered as transfer.

I currently live in a rented place in Thane City and have purchased an under-construction property in Mumbai.

Can I claim HRA benefit (since I am staying in a rented place) and also claim the tax benefits for the under-construction property.

I work in Mumbai and somebody informed me that HRA benefit and home loan benefit can't be claimed in my case. But the benefit of the home loan repayments can be taken over a period after 3 years from the date of possession of my new house.

—Venkatesh Mhatre

The basic principle behind claiming HRA deduction is that you ought to be paying rent. In other words, without paying rent, you cannot get deduction on HRA. In your case, since you are paying rent, you may claim the HRA deduction. Coming to home loan benefit (deduction on interest), the same would be available to you once the house is completed and in your possession. Interest paid during the construction period may be claimed in five equal installments beginning from the year in which the house is completed. Note that the combined limit for pre-possession interest as well as the interest paid on the loan during the year of possession is Rs 1,50,000.

My question is with respect to exact figures of my HRA deduction. The following are the particulars —

The house property purchased is not rented out but I am staying at a different place for employment purposes. Interest on loan for the purchase of said house, say, Rs 1,50,000. HRA calculated as per the provisions of the Act, is say Rs 90,000. Salary is say Rs 10,00,000.

Is Rs 2,40,000 deductible from salary for the purpose of computation of TDS. Or is the interest on housing loan not allowed, since the house is not self-occupied?

—Rajesh Pillai

The HRA deduction does not depend upon whether you own a house or not. Rather it depends upon whether you pay rent for the premises that you stay in or not. So in your case, assuming the figures provided are accurate, the total deduction you will be entitled to would be Rs 2.40 lakh.

My son-in-law sends money to me from his NRI account frequently. I am a salaried employee. I would like to know whether the amount sent to me to my account is taxable either for me or for him. Is there any limit (per annum, etc) for sending such funds?

—Ravindra

Any amount sent by your son-in law to you will be fully tax-free for both you and him. This is as per the provisions of Sec 56 of the Indian Income Tax Act that exempts gifts between relatives. However, it would be advisable to record this transaction in writing. A simple offer by him (on paper) to you, mentioning your relationship and the amount of the gift and your acceptance thereof should be kept on file by the both of you.

If I become a foreign national and also obtain an overseas citizenship of India (OCI) then please clarify the following

Need I convert my present bank a/c to NRO, NRE or both?

What is the difference between NRO and NRE account?

Is there any change in the rate of interest on term deposit with the bank, as compared to the normal deposits done by me, as I am an Indian resident and Indian passport holder at the moment?

—S S Gupta

Changing your citizenship or becoming an OCI doesn't materially change your status under Indian law. In other words, you still remain an NRI (or to be precise a PIO - Person of Indian Origin). Even after obtaining your new nationality and passport, your rights, privileges and obligations vis-à-vis India remain the same. So, yes, you need to convert all your bank accounts that you had as an Indian resident to NRO. Any fresh accounts that you may open using foreign currency will be NRE. The money in the NRO accounts is not repatriable, whereas that in the NRE account is fully repatriable. The interest on an NRO term deposit is similar to what an Indian resident earns on his rupee deposit (currently in the region of 8.5% to 10% pa taxable). The NRE interest while being tax-free is capped at LIBOR rates.

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