Tax planning

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 October 2011 Dear Sir/ Madam

Mr. A is a director in company and his salary structure is Rs. 150000/- Basic Salary, 25000/- HRA, and 25000/- Special Allowance Total 200000/- P.M.

He has 1 house property in gwalior city and want to construct another house in same city so that he sold the house and now take a house on Rent of Rs 80000/- p.m. (40000/- in cheque and 40000 in cash).

Now i would like to know what deduction and benefits are available for company and director also.

Its very urgent.

Regards
Amit

CA PRAVIN

CA PRAVIN (Expert)
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07 October 2011 Director's Point of view:

1] Director will get the benefit of HRA exemption.
2] House which he sold, capital gain will attract whether short term or long term as the case may be.
3] Whether he purchased a house property within a period of two years [ for construction 3 years] he will get a deduction us/ 54.

I THINK NO DEDUCTION WILL BE AVAILABLE FOR COMPANY.

Querist : Anonymous

Querist : Anonymous (Querist)

11 October 2011 Sir,thanks for reply but I have another query that, In the same city whether he will get the HRA Exemption. however I agree with the points related to the capital gain.

I would also like to know the best route in this case to save the tax and benefits available for co.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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26 July 2025 Got it, here’s a clear breakdown for Mr. A’s situation:

### From Director’s (Mr. A’s) perspective:

1. **HRA Exemption:**
Mr. A **can claim HRA exemption** if he is paying rent, regardless of whether it’s in the same city or a different city. The key conditions for HRA exemption are:

* He receives HRA as part of salary (Rs. 25,000 here)
* He actually pays rent (Rs. 80,000 per month)
* Rent paid is more than 10% of salary (which is true)
* Proof of rent paid (ideally rent receipts or bank statements for cheque part; cash part might be tricky to prove)

2. **Capital Gains on Sale of Previous House:**

* Taxable as Short Term or Long Term Capital Gain depending on period of holding
* If he buys another house within 2 years (or constructs within 3 years), he can claim **exemption under Section 54** by reinvesting the capital gains in the new house.

3. **Rent Paid:**
The rent paid for the new house is eligible for HRA exemption calculation, regardless of city.

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### From Company’s perspective:

* **Is there any tax benefit for the company?**
Usually, no direct tax benefit arises for the company for the director’s HRA or house purchase/sale.

* The company pays salary (including HRA) which is deductible as business expense.
* The company is not involved in the house sale or purchase, so no benefit or loss on that front.
* Reimbursement of rent or housing-related expenses by company may be taxable in hands of director.

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### Best Tax Planning Tips for Mr. A:

* Keep proper rent receipts for claiming HRA exemption.
* Invest capital gains in a new house property within the prescribed period to claim exemption under Section 54.
* Avoid paying rent in cash to prevent trouble proving rent payment for HRA exemption.
* If possible, plan salary structure to optimize tax benefits (e.g., provide more allowance components that are tax exempt or exempt to extent allowed).
* The company can continue to treat salary including HRA as business expense.

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**Summary:**
Mr. A can claim HRA exemption even if the new rented house is in the same city. He should save capital gains tax by reinvesting in new property under Section 54. The company has no direct tax benefit on the house sale or purchase, but salary paid including HRA is a deductible expense.

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If you want, I can help draft this as a formal reply or suggest some more tax planning ideas for salary structuring. Just let me know!

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