An employee earns HRA irrespective of whether he or she pays rent

Written by Sandeep Shanbhag | AN Shanbhag | Updated: Sep 28 2008, 06:58am hrs
My son is an NRI. He wants to give a gift / loan of Rs 2 lakh to me. If he transfers this amount from his NRE a/c to my savings account in India - will he be taxed


Gift amounts received from any close relative are not taxable in the hand of either the donor or the donee. It is perfectly okay to give the gift as intended by him to you. Both of you will not be taxed on this transaction. As far as the law is concerned, he may give the same as a loan also if he so desires. Note that the income generated in future from this gifted amount is exigible to tax, unless your total income, including income from the gifted corpus, is less than Rs 2.25 lakh for the financial year.

My wife and I both work in a PSU. I want to know that in this case HRA should be admissible to both or not What are the rules Can both can get HRA

Yogesh Singh

HRA, which stands for House Rent Allowance is an allowance/income that is given by an employer. The employee earns HRA irrespective of whether he or she is paying rent for the premises lived in. However, a deduction from such HRA is only available if the receiver pays rent for the premises he or she lives in. So in your case, if you are living in a house that is owned by you and/or your wife, neither of you will get any deduction from HRA.

On the other hand, if you live in a rented property, then HRA deduction will be available to the person paying the rent. If both of you bear the rent burden, HRA deduction would be available in proportion to the rent paid by you respectively. Note that the HRA deduction is the least of the rent paid or 50% of salary or excess of rent paid over 10% of salary.

I have a doubt regarding Housing Loan Tax Benefit.

In one of the Q&As I had read that a person who has two houses can show both houses as self occupied and get complete interest deducted from his income as one house will be assumed to be let-out.

Now my doubt is as follows:

1. Property 1: Fully Paid and vacant. (no rent being received)

2. Property 2: On Loan and I am staying with family.

Q 1: In this case can I still get the benefit of tax deduction of the entire interest paid on Property 2 by showing notional income for Property 1 and adding that to my income or not

Q2: Will the situation change if the first property is occupied by my parents. (no rent being received from them).

Amit Khorana

As per the Income Tax Act, any one self-occupied house may be exempted from tax and the second house onwards would be subject to tax on a notional rent basis even if not rented out. You have two properties and one of them as per your choice will be tax-free. Which one will be chosen as tax-free depends upon the facts of the case. The notional rental value would also play a significant part in your decision.

For example, if the fair rent payable for similar properties in the area significantly differs for both properties, you should choose the one that commands the higher rent to be tax-free. However, the total amount of interest paid on the one taken on loan is also a parameter to consider, since on a tax-free house, the interest deduction is capped at Rs 1.50 lakh, whereas the entire amount of interest is deductible where the house is not tax-free. So your decision will basically be based on the amount of rent that both the flats can command and also the interest that you are paying on the property purchased by means of the housing loan. Occupation of the property by parents will have no bearing on the above.

Please clarify that for an employer, under gratuity law, how much maximum gratuity amount is payable once it is due to an employee. Please clarify whether gratuity amount has any maximum ceiling limit or not under any industrial act. For example; if gratuity payable works out more than Rs 3,50,000 and above, can the employer refuse to pay excess over Rs 3,50,000 or is it compulsory to pay more with a tax obligation to an employee

Can you also confirm whether the definition of salary with regard to the eligibility for calculation of gratuity, bonus, PF, etc means basic + HRA + Medical + Conveyance + other allowances

SA Virani

Any death-cum-retirement gratuity received under the pension rules (or any similar scheme) by employees of central or state government, any local authority or defence and civil services is wholly exempt.

Gratuity received under the Payment of Gratuity Act, 1972 is exempt up to a limit of gratuity paid at the rate of 15 days (last drawn) salary per year of completed service or part thereof in excess of 6 months or Rs 3,50,000, whichever is less, provided the employee has been in continuous service for 5 years. In the case of employees of other statutory corporations and employees in the private sector to whom the Payment of Gratuity Act is not applicable, the exempt amount would be the least of the following:

* Actual amount of gratuity.

* Half months salary for number of years of service calculated on the basis of average salary for the last 10 months.

* Rs 3,50,000.

This exemption is also available to the widow (but not widower), children and dependents if it is paid after the death of the employee.

Salary includes DA if the terms of employment so provides but excludes all other allowances, bonuses, commissions and perks. The payment of gratuity, while the employee is still in service, does not qualify for any exemption. Gratuity received from a previous employer will be pooled with gratuity received from the present employer for computation of the exempt limit.

It is only the Payment of Gratuity Act, 1972, which puts a ceiling of Rs 3,50,000 on the amount of gratuity payable. In the rest of the cases, the ceiling is dependent upon the employment rules.

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