Is this a loophole in the IT Act????

Page no : 2

Devendra (Article) (72 Points)
Replied 29 November 2009

Juzar Thanks for ur views.

But if the employee paid for the rent he wouldnt have got a deduction except some 25000 u/s80 and the company would have reimbursed him the amount taxing it fully.In this case the Company is saving Tax by claiming the deduction.So i wouldnt call it double taxation.Where one person is paying tax the other is saving

Please reply on your views

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Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 29 November 2009

Dear Devendra,

I assume u/s. 80 used is for deduction under section 80GG.

Also m not able to understand that; where you have found this Rs. 25000/-?

Further, continuing your example that employee is paying rent and employer is reimbursing the same amount.

The response is that the employee may claim exemption u/s. 10(13A) for HRA.

Let’s see the Tax implication of transaction;

1. Company is claiming expenses of HRA

2. Employee is getting exemption upto 50% of salary or rent paid - 10% of salary whichever is lower from the amount of HRA and balance HRA shall be taxable in Employee’s hand.

3. Landlord shall be liable to pay tax on rental payment made by employee.

Now there is chance that one may say that at stage "2" there is no accretion/income but employee is require to pay tax.

Devendra, please let me know whether I have interpreted your query inline of your requirement?

Regards

Juzer

(Guest)

There is double taxation in case of rent free accomodation no doubt.

But if we look from the individual's point of view it is an accretion to his income and so taxed. I mean it is a perquisite. Deduction can be claimed u/s 80GG....There is nothing like Rs.25000 in this case...

Devendra (Article) (72 Points)
Replied 29 November 2009

Thank you Juzar for your views.I Forgot abount HRA.

I meant deduction u/s.80GG which is subject to maximum Rs.2000pm ie 24000(said 25000 by mistake)

Rohan Bhandare ( ) (73 Points)
Replied 04 December 2009

i dont think this is so complex...It isnt double taxation as such...Double Taxation is when 1 person has to pay tax twice. I dont think this happens in either case

For the Part A Mr.Juzar has told us...

If employer gives RFA to employee

Then Employee pays tax as this is a perquisite thus income

The Landlord pays tax when he receives such an amount. Right?

Now this would have been the case if instead of RFA the employer had given a Salary of the same amount.In this case

Employee pays tax on his Salary..

Out of this Salary he pays the Landlord, for whom this is income and thus taxable..

This is perfectly normal and no double taxation as said above.

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Shashi Bhushan (Learner, Jalandhar) (996 Points)
Replied 04 December 2009

Originally posted by :Poonam Thanvi
"	There is double taxation in case of rent free accomodation no doubt. But if we look from the individual's point of view it is an accretion to his income and so taxed. I mean it is a perquisite. Deduction can be claimed u/s 80GG....There is nothing like Rs.25000 in this case...	"

There is nothing like 80GG in this case. he is getting RFA. 80GG is available when a person is paying rent and he dont own house in that city(some other conditions are also there). Also a person can not claim 80 GG if he is getting RFA or HRA.

Also Rohan is right. there is no double taxation.