|Avail tax benefit if living in a rented premises|
TAX TALK-28.12.2015-THE HITAVADA
CA. NARESH JAKHOTIA
Avail tax benefit if living in a rented premises
My question is - which are the class of person who are eligible for deduction u/s 80GG of the Income Tax Act-1961. Any businessmen operating their own business are eligible for deduction u/s 80GG in case they don’t have their own house? Please guide.
A person should be taxed according to his means- Talmud
The person living in a rented premises need to be compensated as compared to those living in an own premises. Lot many people who don’t own a house and are staying in a rented premises are eligible for deduction u/s 80GG of the Income Tax Act towards rent Payment. Not aware of the deduction conferred by section 80GG, many individual (whether salaried or businessmen) end up paying higher tax than otherwise they would have been liable to pay.
The conditions for claiming deduction under section 80GG are as under:-
a] Individual has to prepare a declaration in Form No.10BA.
b] Individual or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
Amount of deduction – The deduction admissible shall be the lower of the following:
(i) house rent incurred in excess of 10% of “Total Income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 2000 per month.
[Note: The term “Total income” means total income after allowing all deductions expect the one provided under this section itself. In case of salaried assessee who is in receipt of HRA from the employer, no deduction u/s 80GG is admissible. However, they can claim deduction u/s 10(13A) of the Income Tax Act-1961.]
In your specific case, if all other conditions are satisfied, you can claim deduction u/s 80GG by paying the house rent.
Housing loan is one of the easiest & widely used tax saving tools for majority of the taxpayers. Interest paid on amount borrowed for purchase/construction of house is eligible for deduction u/s 24(b) of the Income Tax Act-1961 up to a maximum of Rs. 2 Lacs p.a. in case of self occupied house property. [Earlier, there was a max cap of Rs. 1.50 Lacs which is enhanced to Rs. 2 Lacs by the Finance Act-2014 from the FY 2014-15 & onwards]. Additionally, principal repayment of housing loan is also eligible for deduction u/s 80C subject to overall maximum cap of Rs. 1.50 Lacs. Lot many taxpayer are not aware of the fact that even stamp duty, registration expenses etc paid for purchase of a house property is also eligible for deduction u/s 80C, subject to same overall cap of Rs. 1.50 Lacs.
An important issue that has been raised by you is “Whether the tax benefit would be available in respect of loan taken for reconstruction of house property?” To understand the admissibility of deduction, one needs to visit the law since its inception.
Deduction U/s 24(b):
Originally (prior to 01.04.2009), the Interest deduction in respect of self occupied house property u/s 24(b) was available in respect of amount borrowed for “Purchase, construction, repairs, renovation or reconstruction” up to a maximum of Rs. 30,000/-. The limit was raised to Rs. 1.50 Lacs & then Rs. 2 Lacs in respect of self occupied house property if the amount is borrowed for “Purchase or Construction” (note the omission of word “repairs, renovation or reconstruction”). To be more specific, in case of loan availed for repairs, renovation or reconstruction, deduction u/s 24(b) would still be restricted to Rs. 30,000/- only. Taxpayer may note two more aspects about admissibility of deduction u/s 24(b). First, deduction u/s 24(b) is available even if the amount is not borrowed from banks or financial institutions but is borrowed from private lenders. Second, the upper cap of Rs. 2 Lacs/1.50 Lacs is only in respect of self occupied house property. There is no such upper cap in respect of let out property and entire interest paid would be deductible against Rent/Annual value of the property without any ceiling in such cases.
Deduction U/s 80C(2)(xviii):
Deduction u/s 80C is available only on repayment of housing loan taken for “Purchase or construction” of a house property. Though deduction u/s 24(b) is admissible even if the amount is borrowed from private parties, this is not so for claiming deduction u/s 80C. Deduction u/s 80C is available only if the repayment is done to the bank, LIC, NHB, Central or State Government, and few others specified lenders. Further, no deduction u/s 80C against the repayment of the loan availed for addition, alteration, renovation or repair of the house property is available if it is carried out after the issue of the completion certificate by the competent authority or after the premises is occupied.
To sum up, in the case of first query,
(a) Though Interest on housing loan availed for purchase or construction of house property is eligible for deduction u/s 24(b) up to a maximum of Rs. 2 Lacs, it is not so with respect to loan taken for repairs, renovation, and reconstruction of the house property. In respect of such loan, Interest would be eligible for deduction up to a maximum of Rs. 30,000/- (& not Rs. 2 Lacs).
(b) Repayment of principal portion of loan is also not eligible for deduction u/s 80C.
In the case of second query, repayment of principal portion of housing loan to LIC Housing would be available for deduction u/s 80C subject to overall maximum cap of Rs. 1.50 Lacs. Aggregate deduction u/s 80C (which would include LICHFL, Life Insurance premium, PPF Deposits, etc) could not exceed the amount of Rs. 1.50 Lacs.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
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