Proof of rent paid needed for claiming HRA exemption, even if it is paid to parents
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As far as I understand, if I live in my parents’ house, I am allowed to deduct up to Rs10,000 for rent paid to my mother. If I do this, do I have to quote my mother’s PAN to my employer, since the rent for the whole year exceeds Rs1 lakh?
Merely living in your parent’s house will not give you an entitlement to claim any amount as house rent allowance (HRA) exemption. This exemption can be claimed only if you actually pay a rent in respect of the accommodation occupied by you, and it is restricted to the limits specified in the tax law.
If you actually pay a rent to your mother and she owns this property, you may be entitled to claim the HRA exemption. You would need to provide your employer the prescribed declaration (Form 12BB) specifying your mother’s name, address and permanent account number (PAN). You will have to give the house owner’s PAN—your mother in the instant case—if the aggregate rent paid during the financial year exceeds Rs1 lakh.
Your tax officer can demand proof to check if this is a genuine claim, and she can call for documents such as lease and licence agreement, letter to the housing co-operative society notifying the tenancy, electricity bill, water bill, proof of payment of rent to mother, and others.
In fact, there has been a recent judicial precedent in this regard, wherein the Indian revenue authorities denied the claim of rent paid to mother by a taxpayer in the absence of documents, information or records evidencing payment of rent.
My father had bought land for Rs75,000 in 1991. We intend to sell that now at Rs35lakh and buy a new house (in my father’s name) of the same value in the same city. We have one residential house in my mother’s name. Will long-term capital gains tax apply on the sale of land?
We presume that the land held by your father does not qualify as agricultural land.
As the land has been held by him for more than 24 months from the date acquired, the gains, if any, resulting from the sale would be taxable as long-term capital gain (LTCG). This is computed as the difference between net sale proceeds and the indexed cost of acquisition of the land. Tax shall be payable at 20.60% (plus applicable surcharge).
Your father can claim an exemption from such capital gains tax, under section 54F of the income tax Act, if the net sale proceeds from the land is re-invested to buy a residential house in India (let’s call this ‘new asset’ for ease of reference). This exemption does not apply if he already owns or invests in any other residential house (other than the new asset), within the prescribed timelines.
This re-investment should be made within the specified time frames (i.e., within 1 year before or 2 years after the sale date if the new asset is purchased, or within 3 years from the sale date if the new asset is constructed). Net sale proceeds would mean the sale proceeds of the land after reducing any costs incurred to sell the land (say, broker fees).
If your father does not own another house currently and he re-invests the entire net sale proceeds in buying a new residential house, the capital gains arising should not be liable to taxes.
If this exemption is not available, you may evaluate investing the capital gains in specified bonds issued in this regard under section 54EC for claiming a tax exemption.
Parizad Sirwalla is partner (tax), KPMG.
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