Deduction on housing loan interest is independent of HRA

Written by Sandeep Shanbhag | AN Shanbhag | Updated: Apr 27 2008, 07:48am hrs
As per one of your replies to a reader, you have mentioned that reinvestment of dividends in an ELSS scheme also qualifies for a deduction under section 80C. I have read the notification of ELSS in this regard and based on the reading of the same I do not see that dividend reinvestment qualifies for deduction under section 80C of the Income Tax Act. I shall be much obliged if you could clarify the basis of your opinion.


The notification is to do with how the ELSS scheme is structured. It doesn't speak of any tax benefit. It just mentions. In other words, we do not find anything in the notification, which is contrary to our stand.

If the reinvestment option is available, and the investor has opted for the same, the amount of dividend reinvested is definitely a contribution to the scheme and therefore, it is eligible for the benefit of Sec. 80C.

I own a house for which my interest component on loan is about 2 lakh pa. I have rented out the place for Rs 15,000 per month. I stay in another rented apartment paying a rent of Rs 13,500 per month. Can I claim deduction against my HRA


There are only two situations under which the exemption on HRA cannot be claimed

1) the residential accommodation occupied by the assessee is owned by him; or

2) the assessee has not actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him.

In your case, you do not own the premises occupied by you and you pay rent for that accommodation. Hence you pass both the tests and are free to claim the exemption on your HRA as per the rules. The deduction on interest of housing loan is independent of HRA.

Therefore, you can claim deduction for the interest paid on the housing loan separately against the income from the house property.

In the case of HRA, the least of the following is exempt from tax u/s 10(13A):

a) 40% of salary (50% for Mumbai, Kolkata, Delhi, and Chennai).

b) HRA for the period the house is occupied by the employee.

c) The excess of rent paid over 10% of salary.

'Salary' includes DA if the terms of the employment so provide, but excludes all other allowances and perquisites.

I own a property in Mumbai that I propose to will to my son who is in the US. In return, my son intends to send some money to me for taking care of my living expenses throughout my remaining life. This in short is our family arrangement. In this regard, will the money that is sent by my son be regarded as a gift Does it matter whether the money is paid from India or US When the property goes to my son, will there be any gift tax At the moment, my son is an NRI and a green card holder. If tomorrow he becomes an American citizen, can he continue to own property in India

V K Kapoor

The family arrangement that you describe is a bit like an informal reverse mortgage structure. When your son sends money (without any consideration as such), it would automatically amount to a gift. On the monies sent, there will be no tax either on you or on your son by virtue of the provisions of Sec. 56 of the Indian Income Tax Act that exempts the levy of a gift-based tax on gifts between relatives. It makes no difference (tax wise) whether the money is remitted from abroad or transferred from an NRE or NRO account. When the property passes by way of a will, it becomes an inherited asset and there is no gift tax on inherited assets. India doesn't levy an inheritance tax and hence the passing of the property would be totally tax-free.

NRIs are persons abroad who continue to have an Indian passport. PIOs are Indians who have a foreign passport. The rights, privileges, and obligations of both NRIs and PIOs are similar as regards property in India.

The only restriction being as a foreign passport holder, if ever he wants to sell the property, your son will not be allowed to sell it to another PIO. He will necessarily have to sell it to another NRI or to a resident Indian.

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