House rent al-lowance (HRA) isreceived by thesalaried class. Adeduction is per-

missible under Section10(13A) of the Income TaxAct, in accordance with Rule2A of the Income Tax Rules.You can claim exemption onyour HRA under the IncomeTax Act if you stay in a rentedhouse and get a HRA fromyour employer.

The HRA deduction isbased on salary, HRA re-ceived, the actual rent paidand place of residence. Theplace of residence is impor-tant. For Mumbai, Kolkata,Delhi or Chennai, the tax ex-emption on HRA is 50 percentof the basic salary, while forother cities it is 40 percent ofthe basic salary. The city ofresidence is to be consideredfor calculating HRA deduc-tion.

The least value of these is al-lowed as tax exemption onHRA:

� Actual rent allowance theemployer provides as partof salary in the relevant pe-riod during which therental accommodation wasoccupied

� Actual rent paid for thehouse, less 10 percent of ba-sic pay

� 50 percent of basic salary ifyou reside in Mumbai, Cal-cutta, Delhi or Chennai, or40 percent if you reside inother cities

In order to claim the ex-emption, the rent must actu-ally be paid for the rentedpremises which you occupy.Also, the rented premisesmust not be owned by you. Aslong as the rented house is notowned by you, the exemptionof HRA will be available up tothe limits specified.

For the purpose of this de-duction, salary means basicsalary and includes dearnessallowance, if the terms of em-ployment provide it, and com-mission based on a fixed per-centage of turnover achievedby the employee.

The deduction is availableonly for the period duringwhich the rented house is oc-cupied by the employee andnot for any period after that.It is to be noted that the taxbenefits for home loans andHRA are two separate as-pects. In case you are payingrent for an accommodation,you can claim tax benefits onthe HRA component of yoursalary, while also availing taxbenefits on a home loan.

You need to submit proof ofrent paid through rent re-

ceipts, duly signed andstamped, along with other de-tails such as the rented resi-dence address, name of theowner, period of rent etc.

Ashish Gupta

explains how

you can avail a

tax deduction

on house rent

allowance

ance Rs 1.75 lakhs (Rs 6.75 lakhs mi-nus Rs 5 lakhs) he will pay tax at 20

percent, thus paying a total tax ofRs 61,000 (Rs 26,000 plus Rs 35,000).

If Ramkumar had no incomeother than short-term capitalgains, his total taxable income willbe Rs 5 lakhs on which he has anexemption of up to Rs 2.4 lakhs andon the balance income of Rs 2.6lakhs he will pay a tax of 10 percentwhich works out to Rs 26,000.

If Ramkumar had also taken apolicy for health insurance by pay-ing Rs 10,000, his total taxable in-come will be Rs 2.5 lakhs (Rs 2.6lakhs minus Rs 10,000) and he willpay a tax of Rs 25,000.

(The author is Director,DMS Financial Services Pvt Ltd)

Many individuals consider pur-chasing plots of land purely forinvestment purposes with aview to sell them within two orthree years. What are the in-

come tax implications? Income (surplus) de-rived from the sale of a capital asset whethermovable (such as sale of shares, units etc) orimmovable (such as sale of plot of land, build-ing) results in capital gains. Capital gainscould be short-term or long-term and in bothcases the surplus is taxable under the IncomeTax Act under the head 'Capital Gains'.

Equity shares and property

Where the asset is a share listed in a recog-nised stock exchange or a unit of a mutualfund, the period of holding should be morethan 12 months to be classified as a long-termcapital asset. Otherwise, it is classified as ashort-term capital asset. For all other assetsincluding property, the period of holdingshould be more than 36 months to be classifiedas long-term.

Any income (surplus) derived from sale of along-term capital asset is taxed as long-termcapital gains. Similarly, income derived from ashort-term capital asset is taxed as short-termcapital gains. This classification is importantas there is differential treatment with respectto levy of income tax for each of them.

Let us confine the taxation aspect of capitalgains to immovable property, particularlyshort-term.

Computation of short-term

capital gains

The income (profit) derived from transfer ofshort-term immovable property is taxed asshort-term capital gains. Short-term capitalgains are 'excess of amount realised' over thecost of acquisition and the cost of improve-ment if any such as fencing, and expensessuch as brokerage.

The surplus, if any, is taxed as a short-termcapital gain. Short-term capital gains are sim-ply added to the income and taxed at normalrates. If your income as it is was taxable at thehighest slab rate, the short-term capital gainswill also be taxed at the highest tax rate. Ifyour income falls below the minimum taxablelimit you will need to add the short-term capi-tal gains to this income and then work out thetax as per the slabs given for the aggregate in-cluding short-term capital gains. You canclaim deductions under relevant Sectionssuch as 80C, 80D, 80G etc for any invest-ments/payments made by you from the tax-able income including short-term capitalgains.

How it works

The pension income of Ramkumar, a pen-sioner is Rs 1.75 lakhs. He is 65 years old onApril 1, 2010. He has short-term capital gainsof Rs 5 lakhs on sale of a plot of land in theoutskirts of the city. The taxable income inthis case will be Rs 6.75 lakhs and being a sen-ior citizen he will have exemption of up to Rs2.4 lakhs. The first slab of income being Rs 5lakhs (as per the Union Budget announced inFebruary 2010 applicable from April 1), on anamount of Rs 2.6 lakhs he will pay tax at 10percent amounting to Rs 26,000 and on the bal-

7 MONEY MATTERS

F R I D A Y, A P R I L 9 , 2 0 1 0 A TIMES OF INDIA PRESENTATION

For an income to betaxable under thehead ‘Income fromHouse Property”,certain conditions

need to be met. Firstly, the as-sessee must own the property.Secondly, the property shouldconsist of buildings or landadjacent thereto. Further, theproperty must be rented outso as to derive rental income.It must not be used for thebusiness or profession of theassessee.

A common question raisedby many is whether only theowner is liable to tax on ‘In-come from House Property’.In some circumstances, theperson liable to tax may notbe the owner of the house.

The provisions of the In-come Tax Act extend thepurview of taxation to in-clude not only the owner, buteven the deemed owner of a

property, to make him liableto tax under ‘Income fromHouse Property’. Under theAct, a deemed owner is anowner by implication. He maynot be the owner in the truesense of the word. But from ataxation perspective, such aperson is treated as the ownerand is liable to tax, just like areal owner of the propertywould be.

For example, in case an in-dividual transfers a propertyfor inadequate considerationor gifts a property to a minorchild, he will be treated asdeemed owner of that proper-ty. Although legally the ownerof the property is the minorchild, the income from thatproperty will be treated as in-come of the person who hastransferred it. The law pre-sumes that such a transferhas been triggered with theintention of avoiding tax.

Another stipulation is con-tained under Section 53A ofthe Transfer of Property Act.Section 53A of the Transfer ofProperty Act deals with situa-tions where though an agree-ment to buy property has notbeen registered with the ap-propriate authority, a personwho has purchased such aproperty will be treated as theowner of the property. Ac-

cordingly, a person who meetsthe provisions of Section 53Aof the Transfer of PropertyAct will be treated as deemedowner of that property for taxpurposes.

In case a person has ac-quired a right through long-term lease of a property, hewill be treated as the owner ofthat property. Long-termlease means lease for periodof more than 12 years. Incomefrom that property will be tax-able in his hands. Similarly, amember of a co-operative so-ciety, company or other asso-ciation of persons to whom abuilding has been allotted un-der a house building schemeof a society will also be treat-ed as deemed owner of thatproperty and taxed like a realowner.

The holder of an impart-ible estate will be treated asthe owner of that entire prop-erty. In case where a HinduUndivided Family (HUF)jointly holds property on be-half of all its members, it willbe treated as the ownerthough legally the property isin the name of an individualmember of the family.

Such deemed owners ofproperty are treated as a realowners for tax purposes andliable to tax accordingly.

Deemed owner

liable to tax

Capital gains tax onproperty investment

Rajeshwari Arvind

outlines the tax

implications on capital

gains arising out of sale

of a site

Tax deduction on HRA

How it applies

For example, assume one earns a basic salary of Rs20,000 per month and rents a flat in Mumbai for Rs 5,000per month. His actual HRA is Rs 8,000. He is eligible for 50percent of the basic pay for HRA exemption.

Least of:

� Actual HRA received - Rs 8,000

� 50 percent of basic salary - Rs 10,000

� Excess of rent paid over 10 percent of salary, i.e., Rs5,000 less Rs 2,000 - Rs 3,000.

As such, Rs 3,000 per month is the least and will be theexemption allowable for HRA deduction.

Ashish Gupta

explains how a

deemed owner

is liable to tax

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