Mr. X an Indian Resident Assessee has one house property.
He lets it out to his employer which is a company. The company pays Rs. 10000 rent per month.
As per the term of employment Mr.X is provided with a Rent Free Accomodation. The house provided to Mr. X is his own house which he let out to the company.
So now Mr. X is receiving rent for staying in his own house!
What is the tax implication in such situation? How to interpret this matter?
Please Do Comment..
Normally companies rent properties from parents and provide the accomodation to the son. I have not heard of anyone risking such a transaction as detailed by Kiran that any AO will view seriously. The problem is calculation of HP with allowances especially of Loss against HP for interest on borrowed capital as well as deduction u/s 80C for principal. On top of it he would claim HRA. That is making matters more complicated. In case such a return is flagged by an AO for scrutiny he may reopen at least the last 4 years assessment.
Thanks for the reply.
I think "he would claim HRA" should have been "he would claim RFA".
Rent free acomodation is a perk that would be taxed. Against the value of the rfa, he would logically claim hra. However, the case would be very complicated. The legal form may pass the test but the substance of these transactions will definitely not. While auditing books of account, an auditor cannot ignore the fact that the flat has been taken on rent from the same person who is employed. Normally almost every receipt by an employee is a salary unless it is a reimbursement of some expense incurred by the employee. When it comes to the AO of the employee he is only going to concentrate on deductions and benefits claimed and decide what to add back to income.
It will be calculated as Income from HOUSE PROPERTY. and RENT Free accomodation
Regd
Lovenish Bansal
when the employee lets out his house on rent and receives a rent free accommodation against it then rent received from such letting is taxable under the head "Income from house property" and deductions u/s 24(a),24(b) will be granted .RFA is also taxable as "perks" under the head "salary".
Assessee in this case will be taxable for both i.e. RFA & Income from house property.
Assessee should not opt for HRA. bcoz it would be fully taxable.
No rent is payable by the Assessee. So whole of amount received in form of HRA is taxable So it is advisable to route it through RFA in spite of HRA. as such RFA is subject to certain conditions & applicable with % age rather than 100% in case of HRA along with Income from House property.
Sahil Beri
This is an allowable practice. Mr.Ravi Gupta has answered it correctly. If you can lay hands on any text book on Income tax, an illustration of this sort can be definitely seen. HRA provisions need not be dragged in unnecessarily. On the one hand you are taxable for your HP income, on the other you are taxable for the RFA.
Yes.....Ravi Gupta is rite.........
According to me...
The Rent he receives will be taxed as his HP income and on the other he is also taxable for RFA....
CAclubindia
