TAX TALK-30.04.2012-THE HITAVADA

TAX TALK-30.04.2012-THE HITAVADA

TAX TALK

BY CA. NARESH JAKHOTIA (Chartered Accountant)

“HOUSE RENT ALLOWANCE & INCOME TAX IMPLICATION”

Query 1]

My question is regarding HRA deduction from Salary. I am working in a private institution based in Nagpur. My consolidated salary is approx Rs. 25k per month. Is there any provision for HRA deduction from my consolidated salary while computing my income tax liability? If yes, what amount can be claimed as deduction for income tax purpose? [Shantukumar-shantukumarved@gmail.com]

Opinion:

1.      Assessee receiving HRA from Employer:
Salaried Assessees who are in receipt of House Rent Allowance (HRA) from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rules, 1962.
The least of following can be claimed as deduction u/s 10(13A):-

a.       An amount equal to 50% of salary, where the residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situated at any other place;

b.      House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or

c.      The excess of rent paid over 10% of salary.
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):

a.       “Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE.

b.      Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.

2.      Assessee not receiving HRA:
In case of other Individual assessees who are not in receipt of HRA from an employer but are living in a rented premises, option of claiming deduction u/s 80GG is available.

Query 2]

I am a senior citizen, 66 years of age, having no taxable income, as at present. I have now decided to sell out my plot, which is in Nagpur city limit, which was purchased in 1994.

My Queries are:

1.      Please let me know the Cost Inflation Index for the financial year 1994-95 & 2012-13?

2.      What is time limit within which the LTCG Tax saving bonds can be purchased?

3.      What is the tax rate under new DTC 2012 for Income under LTCG?

4.      In Nagpur city, where I can purchase the REC tax saving bonds, for claiming tax exemption under sec. 54 EC of I. Tax Act? [Chandrakant Badkas- ckvbadkas@gmail.com]

Opinion:

1.      Cost Inflation Index (CII) for the F.Y. 1994-95 is “259”. The CII for the FY 2012-13 has not yet been notified.

2.      For claiming an exemption u/s 54EC by investing the Long term Capital Gain amount in the specified bonds issued by NHAI/REC, the time limit is of 6 months.

3.  In the original version of Direct Tax code released, the capital gain was proposed to be taxed at a regular rate as per applicable income slab & not at a special rate. However, dust on the DTC has not cleared completely & the final provisions will only be known after the same is replaced in the public domain.
4. The application form for subscription can be accessed at www.recindia.nic.in or at www.nhai.org .

Query 3]

1.      One of our employees is having house property in joint name with his wife (50% Share) He has availed Loan from bank. Please clarify whether he can claim 100% accrued interest benefit while computing income from house property based on the declaration given by him stating that his wife is not claiming the accrued interest in his return as she is not an assessee & that her income is below taxable income?

2.      Here, I want to add that lease income which he is getting from that house property as on date is also Shared i.e., 50%income is accounted in his wife name.

3.      Suppose if he wants to avail HRA benefit from our company terminating lease, whether he is entitled to rebate allowable under Income tax act based on the receipt given/ obtained from his wife since she is holding only 50% share?

You are requested to send your clarification please at the earliest if possible so as to resolve the issues under reference. [Natarajan Subramanian - sans592000@yahoo.co.in]

Opinion:

1.      Ownership is a condition precedent for claiming an exemption u/s 24(b) or u/s 80C of the Income Tax Act-1961. Without ownership, benefit of deduction cannot be availed by the assessee. In the case elaborated by you, non availability of income in the hands of the wife or non availment of deduction by wife doesn’t entitle husband to claim the deduction.

2.      Two Separate treatments are not possible, one for recognizing the income & the other for claiming the deduction. On the one side, assessee (employee-husband) want to prove that he is the owner of the house property for claiming the deduction u/s 24(b) / 80C and on the other side, want to isolate himself while recognizing the income. It appears unacceptable & illegitimate.

3.      It appears that the employee has leased the jointly owned house property to the company and the company has allotted the same as rent free accommodation to the employee. There is no if bar in the Income tax in husband claiming deduction u/s 10(13A) on rent payment to wife.