I am a working woman residing in my father’s house as a tenant. What steps do I have to take to claim tax deduction on the rent paid? Is my father liable to pay tax on the entire rental income? Also, can he claim tax deduction on maintenance of the house (the house is self-occupied with no other tenant)?
If you are employed and are in receipt of house rent allowance (HRA) from your employer, you can generally claim an exemption in respect of rental payments made by you against such HRA. While rental payments to a parent are not specifically prohibited, rent paid to relatives may be more prone to scrutiny and litigation and the genuineness of the claim can be questioned.
You will need to submit documentation evidencing the rent payments, such as a rental agreement executed between you and your father, your father’s PAN (permanent account number), proof of payment of the rent, along with other documents that your employer may call for (for example, letter to society intimating about tenancy, bank statements, etc.). If the amount of rent per month exceeds ₹50,000, you will be liable to deduct tax of 5% of the annual rent and deposit it with the Indian treasury by 30 April following the financial year, as per the current law in force.
Your father is required to offer the rent received as his income, including his other taxable income. A notional standard deduction of 30% of the annual rental value (calculated as rent received minus actual municipal taxes paid), actual municipal taxes paid (proportionate to the portion of property let out) and any interest on loan availed for purchasing the property (proportionate to the portion of property let out), can be offset from the rental income. Your father will also be eligible to claim the interest on loan availed to purchase the property (proportionate to the self-occupied portion of the house), capped to ₹2 lakh in each tax year.
I have bought a flat for ₹14 lakh. I paid ₹1.28 lakh for registration, ₹5,000 as lawyer fees and others. Will the cost of acquisition include the other spends, and indexation be done accordingly?
The legal fee and registration costs incurred by you specifically for purchasing the flat will also be considered as the cost of acquisition. The indexation benefit (to adjust the cost of acquisition against inflationary rise in value of the assets) is permitted only in respect of long-term capital assets. You should have held the flat for at least 24 months before the sale in order to be eligible for indexation benefit.
If this property was originally acquired by you prior to 1 April 2001, you have the option of treating the fair market value (FMV) of the property as on 1 April 2001 as the cost of acquisition while computing taxes, instead of the actual costs incurred by you to purchase/improve the property. Such FMV will then be indexed using the Cost Inflation index (CII) notified by the tax authority as on 1 April 2001 (CII for FY 2001-02 is 100) and the year of sale (CII for FY19 is yet to be notified), to determine the impact of inflation on FMV.
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Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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