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Lease amount when refunded taxable or not

B (Engin) (205 Points)

17 August 2016

If a flat or house is taken on lease a lump sump of money in lakhs is given to the owner at the beginning of lease. After two year of stay in the house when the house or flat is vacated the same lease amount in lakhs is credited back to the tenant. Will this amount in lakhs which is credited back to the tenant be taxable by income tax department for the tenant?

Can the tenant claim HRA tax exemption on the lease amount in lakhs which was credited by the tenant to the owner at the time of lease agreement?

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177267 Points)
Replied 17 August 2016

One time payment toward long lease may be trated as capital asset, and hence any gains from the refund amount can be treated as capital gains/loss.

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B (Engin) (205 Points)
Replied 17 August 2016

FOLLOWING IS THE WAY A LEASE AGREEMENT WORKS HERE:

For a lease agreement of 3 years of Rs X lakhs, the tenant gives Rs. X lakhs to the house owner. When the tenant vacates the house the owner will give back to the tenant Rs. X lakhs. The tenant can vacate the house anytime during the three years lease agreement with a notice period of three months to the owner and owner can also provide the three months notice to tenant to vacate the house anytime in this 3 years of duration. There will be no monthly payment by the tenant to the owner.

So in a lease agreement the interest on the lease amount is enjoyed by the owner of the house and not by the tenant. How will the gain happen then by the tenant from the lase amount? The tenant is giving Rs. X lakhs in a financial year and getting back that amount in the next financial year or next to next financial year depending on when the tenant vacates the house .

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177267 Points)
Replied 17 August 2016

Here its not long lease.

The amount of 3 lakhs given to the flat owner is just Deposit amount, which is return back by owner to tenant without interest on vacating. So where is gain or profit in it?

B (Engin) (205 Points)
Replied 17 August 2016

There is no profit in it by the tennat. The owner will only het the interst on this 3 lakhs. But when the tenant is refunded back this 3 lakhs amount will be credited in his account in a financial year. Will not the income tax department consider it as a taxable income for that year?

Can the tenant claim HRA tax exemption for the lease amount of 3 lakhs for the financial year in which the lease amount of 3 lakhs was credited by the tenant to the owner at the time of lease agreement?