Income tax benefit on rent payment & emi payment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 January 2014 Dear Friends,
I have taken Housing Loan for my Flat of Rs.50Lakh and paying the EMI myself. Due to my personal financial urgency, I have given my flat for a lease of Rs.10Lakh to one of my friend. Please suggest me the income tax benefits on the same. Now my situation as follows.

1. I have Rs.50Lakh housing loan on a flat and I am repaying the EMI to the bankers. I have self occupied that flat for 3 months only.
2. Due to job relocation plan and personal money urgency, now I have given my flat to one of my friend for an interest free lease of Rs.10Lakh for three years. After three years I have to repay him Rs.10Lakh and get back the house occupation. Till that time he has right to use the flat for his own purpose or let out the property as per his interest. If he let outs, he will receive the rent and I didn’t have any share on the rental income.
3. Due to cancellation of relocation plan, I agreed with my friend that I will pay him rent till next three years. Now I am staying in the same flat and paying rent of Rs.15,000/- PM to him. And also I am paying the EMI to the bank for the same flat.

Kindly suggest me how can I get tax benefit on the same.

Regards,
Mahendra
Bangalore

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2014 Hi Experts,
Can you please share your opinion on the below request?
Thank you.

Querist : Anonymous

Querist : Anonymous (Querist)

31 January 2014 Hi,
Can any one suggest me on the above complication please..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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31 July 2024 Based on your situation, here’s how you can manage the tax implications and benefits related to the housing loan, rent payment, and lease arrangement:

### 1. **Tax Benefits on Housing Loan (Section 24(b) & Section 80C):**

- **Interest on Housing Loan (Section 24(b)):**
You can claim a deduction of up to ₹2 lakh per annum on the interest paid on your housing loan under Section 24(b) of the Income Tax Act if the property is self-occupied. Since you have self-occupied the flat for part of the year, you can claim this deduction proportionately for the time it was self-occupied and let out.

- **Principal Repayment (Section 80C):**
You can claim a deduction of up to ₹1.5 lakh per annum on the principal repayment of your housing loan under Section 80C. This deduction is available irrespective of whether the property is self-occupied or let out.

### 2. **Income from House Property:**

Since the property is not let out but given on a lease arrangement, the tax treatment will be as follows:

- **Rental Income:** Since the property is leased out, the rental income, if received by you, would be taxable under the head “Income from House Property.” However, as per your scenario, the lease rent is given to a friend, and you do not share in the rental income; thus, you don't have any rental income to declare.

- **Notional Rent:** If the flat is occupied by you but rented out to a friend under an interest-free lease, this arrangement can be considered a notional rent scenario. However, since you’re paying rent to your friend and staying in the flat, this would be considered as paying rent for the period you are staying there.

### 3. **Rent Paid to Friend:**

You are paying a rent of ₹15,000 per month to your friend. Here’s how you can claim the benefit:

- **House Rent Allowance (HRA):** If you are a salaried employee and receive HRA, you can claim a deduction under Section 10(13A) for the rent paid. Ensure that you have a rent agreement and rent receipts from your friend to substantiate the claim.

### 4. **Tax Treatment of Lease Income:**

- Since you are not receiving rental income from the lease but instead have given a lease and agreed to pay rent, you don’t have to show the lease payment as income but can claim rent payment under HRA if applicable.

### **Summary of Benefits and Considerations:**

1. **Interest on Housing Loan:**
- Claim up to ₹2 lakh per annum on the interest if the property is self-occupied or let out.
- For the part of the year it was self-occupied, claim the deduction proportionately.

2. **Principal Repayment:**
- Claim up to ₹1.5 lakh per annum under Section 80C.

3. **Rent Paid:**
- If you are a salaried employee, claim HRA deduction for the rent paid to your friend, provided you have the necessary documents.

4. **No Rental Income:**
- Since you are not receiving any rent from your friend, there’s no rental income to report, and you should not be taxed on rental income.

5. **Documentation:**
- Ensure you maintain proper documentation for all transactions, including lease agreements, rent receipts, and loan repayment details, to substantiate your claims during tax assessment.

### **Important Note:**
Consult a tax professional for personalized advice, especially considering the unique arrangement of lease and rent. The tax professional can help ensure compliance with all relevant sections and provide guidance on the optimal way to handle your specific situation.

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