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HRA

pankaj (A.C.A) (93 Points)

30 April 2011

There is a joint property in my name and the name of my brother. First holder is my brother. He is receiving HRA from a corporate. Whether I can rent out my protion of house to my brother. Further there is a loan taken aganist the property in the name of my family. Loan installmments are fully paid by my brother of which he is also taking rebate in sec 24b and sec 80C.

Also clarify whether HRA is available in a case where a person is having his own house but he rents it out and is living in a rented property of wihch he is paying rent.

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2 Replies

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 30 April 2011

if you rent out the property to brother, then where his property gone, for which he was availing sec 24b and 80C?

twising too much of the rules for vested interest is called evasion, which is not at all invitable for an indian.

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Alok Siddapur (Consultant) (229 Points)
Replied 14 May 2011

Property owned by co-owners.

⁵⁸ 26. ⁵⁹ Where property consisting of buildings or buildings and lands appur- tenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

⁶⁰ [Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.]

According to the aforesaid section, if share of you and your brother is definite and ascertainable (i.e from the property documents) then first income shall be computed as laid down under sec 22 to 25 and such income shall be divided among both of you in your respective share.

Sec 24 contains provision regarding deduction in respect of interest payable. Under sec 24, interest payable in respect of loan taken for the purpose construction or aqcuisition of loan shall be allowed while computing HP income. It does not say that deduction is allowable only in the hands of the person who has paid the interest. Also as per section 26 income shall be calculated under sec 22 to 25 which includes sec 24. So interest has to be deducted while calculating HP income and net income shall be divded w.r.t your share.

If you have let your share in house to your brother he can claim HRA deduction, but you will have to pay tax on notional income because your bother wont be paying rent to you.

In case of deduction under section 80C w.r.t principal repayment since your brother is repaying the loan deduction will be allowed to him and not you.

And for your last question answer is Yes.

There is very thin line between tax evasion and tax planning, its upto us (CAs) to show these things as tax planning and not tax evasion and we are good at it.. Atleast better than a manufacturer.