Help needed on tax planning for rent

Tax planning 621 views 2 replies

PRASAD

Sr Mgr

25 Points Posted on 01 August 2011

Hi,

Is there a provision in the IT Act which says the rent you pay should be reasonable and within a percentage range of rents for similar property in same locality? I ask because there are salaried employees who live with their parents and can show a higher amount of rent to ensure they get maximum deduction of HRA and such rents maybe higher than market rent.

Please clarify if paying such higher rents is ok as long as that rent is actually paid in cash and IT return filed by the parents to reflect such higher rent.

Replies (2)

C.A SHASHANK GOYAL

Chartered Accountant

362 Points Posted on 01 August 2011

HI , There is no such provision under the income tax act regarding limit of rent , but however while computing the income from house property , yes standard rent is to be taken into consideration which is generally fixed by the municiple authority for a locality for the purpose of collection of municiple tax , if actual rent is higher than the standard rent then such actual rent will be the income , also if you want a complete legal matter you need to have receipt of the rent , so before claiming exemption of HRA under section 10(13A) , you also to consider that higher the your expense , higher will be your parents income .

PRASAD

Sr Mgr

25 Points Posted on 02 August 2011

Thanks Shashank. I am a CA myself but since I have been in service...forgotten the Indian law. since my mom is a senior citizen, even if I show a big rental income for her, she still get taxed in the 10% bracket compared to 30% for me.

Hence just wanted to know that by showing a rent which is 3 times the market value..I am not doing anything illegal