Your queries: Rent paid to close relative should be substantiated by documentary evidence

February 19, 2020 5:00 AM

Exemption of HRA is not available if employee resides in his own house or does not incur any expenditure on payment of rent.

Thus, payment of rent to close relatives shall not be considered legitimate payments in absence of substantive/ cogent documentary evidence to prove it.Thus, payment of rent to close relatives shall not be considered legitimate payments in absence of substantive/ cogent documentary evidence to prove it.

By Chirag Nangia

The flat in which we stay is in my wife’s name. Can I pay rent to her and claim HRA benefit?
—Amit Rai
Exemption of HRA is not available if employee resides in his own house or does not incur any expenditure on payment of rent. In the essence of law this is a highly litigious issue and it has been held in several cases that in the normal course, one would not pay rent to his spouse or parent. Such arrangements have been considered a sham to reduce tax liability. Thus, payment of rent to close relatives shall not be considered legitimate payments in absence of substantive/ cogent documentary evidence to prove it.

I have sold a flat in December 2019 and received Rs 18 lakh. Now, I am also building a house taking a home loan. Do I need to show the amount received in ITR after selling the flat?
—Sourav
While selling a capital asset (the residential house property in this case), one needs to disclose and pay tax on the capital gains so earned. Capital gains are computed by subtracting indexed cost of acquisition/stamp duty value (whichever is higher) from the sale proceeds. Both the sale proceeds and the indexed cost of acquisition/ the stamp duty value shall have to be disclosed in the ITR. Further, since you are purchasing another house on sale of a residential house property you shall be entitled to deduction under Section 54 of the Income Tax Act. Capital gains, to the extent invested in the new house, may be claimed as deduction.

My son plans to avail a home loan with myself as co-applicant. Will there be any problem for him to avail IT exemption on home loan interest and principal repayment since I am the co-applicant? I am a retired private employee and a regular IT assessee.
—P S Suntharrajen
Payment of housing loan entitles one to two tax benefits i.e. deduction for interest under Section 24(b) and deduction for principal re-payment under Section 80C. These deductions shall be allowed to each co-applicant in proportion to his respective share in the property. Since you and your son have independent sources of income, both of you shall be eligible for tax benefits, based on each one’s share in the house.

The writer is director, Nangia Andersen Consulting. Send your queries to fepersonal finance@expressindia.com

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