I own an apartment in Chennai, which I have let out on rent. I also have my own flat where I live. I am planning to renovate both the houses. Is there any tax deduction I can avail for the repairs? I can also take a loan for it if there are any tax benefits.
We have assumed that there are no outstanding housing loans for either of your properties.
For the property you have rented out, where actual municipal taxes are paid, a notional standard deduction of 30% of the annual rental value (rent received minus actual municipal taxes paid), and interest on a loan availed of for acquiring, constructing, repairing, renewal or reconstruction can be offset against the rental income.
The standard deduction is a deemed deduction towards any expenditure incurred for a house property. So no separate deduction will be allowed for expenses incurred for renovating of either of the properties, even if the expenditure exceeds 30% of the rental value.
Further, with respect to self-occupied property, only a deduction of interest on a loan availed of for acquiring, constructing, repairing, renewal or reconstruction can be claimed, subject to the prescribed limits.
Keep in mind that if you choose to compute your income tax liability in accordance with the new tax regime as proposed in the Union Budget, 2020, no deduction towards interest payment on a self-occupied property or loss from a house property can be claimed as deduction from financial year 2020-21.
I get a housing rent allowance (HRA) of ₹22,000 a month. I am paying a monthly rent of ₹13,500. Will I get a tax deduction for the balance ₹8,500? How will the taxation on HRA be calculated?
The Income-tax Act, 1961, allows an exemption from HRA received, which is calculated as the least of the following amounts:
• Actual amount received by you as HRA from your employer;
• The rent paid as reduced by 10% of the prescribed salary;
• If the accommodation is located in Mumbai, Kolkata, Delhi or Chennai, 50% of the prescribed salary; and if the accommodation is situated in any other city, 40% of the prescribed salary.
The prescribed salary for this purpose would include basic salary and any dearness allowance, as per the terms of the employment, but exclude all other allowances and perquisites. The tax exemption available against HRA received would need to be computed according to the above provisions.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.