Well, this was the practical question I faced when I had to sign in rent receipts for my tenants. I looked through net to find what the Income Tax Law says about it, but couldn’t find any section in the rule book that confirms or rejects such an assumption. I thought I should do a bit of research and get some understanding in this area as I like to:
- Know the rules, exceptions, assumptions and then
- Keep to the rules
So below is the summary of what I understood from the content available at Income Tax Law website: http://law.incometaxindia.gov.in/DIT/income-tax-rules.aspx (House rent Allowance - Clause 10 (13A), Clause 80GG, Rule 2 A and Rule 11 B)
The confusion comes as for 1 salaried person the maximum he/she can claim is driven by Rule 2A and company policies that may not cover the entire rent of the house.
For e.g. the house rent is Rs. 15000, Person A can get exempted upto 6000 and Person B also can get exempted upto 6000. In such a case, personally I would like the law to be in favour of each individual and not see them as 1 entity. In which case, each person can claim partial rent (say Rs. 7500 each) and get tax exemption upto Rs. 12000 instead of 1 person claiming full Rs. 15000 and getting only 6000 as tax exemption and the other person actually losing 6000 under taxation.
Well, I think the company tax advisors do recommend the above approach though I have seen few links that say the rent cannot be shared by 2 salaried persons (husband and wife) as they are considered 1 entity by the law. I think this interpretation has following loopholes:
- Each salaried person should be treated as an individual.
- The affordability of the rented place should not be dictated by the law. If both spouses are earning then the chances are they will rent a place that gets covered by overall income and not just by one of the spouses.
- The law should be focussed on creating a win-win situation.
- Finally, why penalize one of the family members for working and then not being able to claim the benefit!!
Hope this blog helps as a pointer to what we should know/do as Owners and Tenants when it comes to rent deduction while paying taxes. I also wish there is consistency across organizations on how this should be treated. Maybe you can check with your Finance department and let me know how this is addressed and if there is any specific rule in the book that I missed out.
