It exemption for housing loan and rent payments

This query is : Resolved

Rajamahendra Varma M.B.A.,LL.B (Querist)
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29 January 2014
Dear Experts,
I have taken Housing Loan for my Flat of Rs.50Lakh and paying the EMI myself. Due to my personal financial urgency, I have given my flat for a lease of Rs.10Lakh to one of my friend. Please suggest me the income tax benefits on the same. Now my situation as follows.

1. I have Rs.50Lakh housing loan on a flat and I am repaying the EMI to the bankers. I have self occupied that flat for 3 months only.
2. Due to job relocation plan and personal money urgency, now I have given my flat to one of my friend for an interest free lease of Rs.10Lakh for three years. After three years I have to repay him Rs.10Lakh and get back the house occupation. Till that time he has right to use the flat for his own purpose or let out the property as per his interest. If he let outs, he will receive the rent and I didn’t have any share on the rental income.
3. Due to cancellation of relocation plan, I agreed with my friend that I will pay him rent till next three years. Now I am staying in the same flat and paying rent of Rs.15,000/- PM to him. And also I am paying the EMI to the bank for the same flat.

Kindly suggest me how can I get tax benefit on the same.

Regards,
Mahendra

AVTAR SINGH

AVTAR SINGH (Expert)
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29 January 2014 No, you can't take any deduction on account of payment of Rs.15000, from salary/income from house property

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Rajamahendra Varma M.B.A.,LL.B

Rajamahendra Varma M.B.A.,LL.B (Querist)
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31 January 2014 Dear Avtar Sir,
Thank you so much for your reply. Since I am paying the rent through a cheque to the third party as per the rental agreement, it is my actual expenses only. If I declare the SBI rate of Interest on the lease amount of Rs.10Lakh under the head income from other source (as notional income from house property), can I get the both HRA and EMI Deductions? Please suggest me the way to claim my actual expenses in my tax computation.
Thank you,
Regards,
Mahendra

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AVTAR SINGH

AVTAR SINGH (Expert)
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31 January 2014 You can claim EMI (interest as well as principal) but the amount of rent of Rs.15000 cant be allowed as rent in any circumstances. If such things are allowed to happen then 99% of people staying in their homes will adopt this practice.

Rajamahendra Varma M.B.A.,LL.B

Rajamahendra Varma M.B.A.,LL.B (Querist)
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31 January 2014 Dear Sir,
Thanks for your response. If I let out own property and if stays in rented how, I can claim both HRA Deduction and EMI payment right..? Since already I have lease agreement with third person and due to the unexpected change in my relocation, I have to stay in rented house. So I opted the house for rental purpose instead of going for other one. Please let know the tax applicability if I say in rented house and if I let out my own house in bangalore.
Thank you,
Regards,
Raja Mahendra

Rajamahendra Varma M.B.A.,LL.B

Rajamahendra Varma M.B.A.,LL.B (Querist)
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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 In your situation, there are several tax implications to consider due to the unique nature of your housing arrangement. Here’s a breakdown of how you can claim tax benefits based on the details you provided:

### 1. **Tax Benefits on the Self-Occupied Flat (House Loan)**

- **Interest on Housing Loan**:
- For a flat that was self-occupied for part of the year and given on lease for the rest of the period, you can claim a deduction on the interest paid on the housing loan under Section 24(b) of the Income Tax Act. For self-occupied property, the maximum deduction allowed is ₹2 lakh per annum.
- Since you were self-occupying the flat for only 3 months, you will need to prorate the deduction based on the period of self-occupation and lease. However, since the property is let out for the remaining period, you can claim the entire interest paid on the housing loan against the rental income for the let-out period.

- **Principal Repayment**:
- You can claim a deduction of up to ₹1.5 lakh per annum on the principal repayment under Section 80C. This deduction applies whether the property is self-occupied or let out.

### 2. **Tax Benefits on Lease Agreement**

- **Rental Income (Notional Income)**:
- Since you are not receiving rent but have given the property on lease, the rental income aspect doesn’t apply. The lease amount received is not considered as rental income but rather as a lease agreement with specific terms. For tax purposes, this amount might not be classified as rental income but could be considered under "Income from Other Sources" if applicable.

- **Taxability of Lease Amount**:
- If you are receiving any notional income or if it is considered under “Income from Other Sources,” you should declare it as per the income tax laws.

### 3. **Claiming Rent Paid**

- **House Rent Allowance (HRA)**:
- If you are staying in a rented house and paying rent, you can claim HRA under Section 10(13A). To claim HRA, you need to ensure the rent payments are made to a landlord and you are receiving HRA as part of your salary.
- The rent paid should be evidenced through a rent agreement and payment receipts or bank statements.

### 4. **Tax Benefits for the Let-Out Property**

- **Rental Income**:
- For the flat you have let out (even if it's leased), you need to report rental income under the head "Income from House Property."
- You can claim a deduction for the entire interest on the housing loan under Section 24(b) against the rental income.
- You can also claim municipal taxes paid as a deduction.

### 5. **Dual Claim Considerations**

- **HRA and Housing Loan Deductions**:
- It is possible to claim both HRA and housing loan deductions, provided you meet the conditions. If you are renting another place while your original property is on lease, you can claim HRA for the rented accommodation.
- You cannot claim HRA and housing loan deductions for the same property if you are not living in it. However, you can claim tax benefits on the loan interest for the period the property is let out or self-occupied.

### Summary and Recommendations

1. **Claim Interest Deduction**: For the period the flat was self-occupied, claim interest under Section 24(b) up to ₹2 lakh. For the period the property is let out, you can claim the full interest paid against the rental income.

2. **Principal Repayment Deduction**: Claim up to ₹1.5 lakh under Section 80C.

3. **HRA Claim**: Claim HRA for the rent paid for the new rented accommodation.

4. **Taxable Lease Amount**: If applicable, declare any notional income from the lease amount as per tax regulations.

5. **Consult a Tax Professional**: Given the complexity of your situation, it's advisable to consult a tax professional or financial advisor to ensure you are complying with tax laws and maximizing your deductions accurately. They can help you navigate the specifics of your lease agreement and rental situation to optimize your tax benefits.