Some instances when the rent paid is allowed as a deduction while arriving at total taxable income

An individual is allowed a deduction on the rent he pays for the house occupied by him. The relevant provisions are contained under Section 80GG of the Income Tax Act. In computing the total income of an assessee, he is allowed a deduction on the expenditure incurred towards payment of rent for any furnished or unfurnished accommodation occupied by him. The residence should be rented for his own use only.

In order to avail this deduction, the assessee should be self-employed or a salaried employee. The deduction is not restricted to salaried employees only as is the case with house rent allowance (HRA). Further, he should not have received a HRA at any time during the previous year. In case he had received a HRA during any part of the previous year, the deduction under Section 80GG is not available to him. The assessee should file a declaration in Form 10BA furnishing the expenditure incurred by him towards the payment of rent.


However, the Income Tax Department may prescribe other conditions or limitations, regarding the area or place in which the accommodation is situated, after taking into account other relevant considerations.

Normally, most salaried employees get HRA and accordingly the deduction on rent paid is governed by the provisions related to HRA under the Income Tax Act. The biggest advantage of this deduction is that it is available even to self-employed people who stay in rented accommodation.

Amount of deduction is limited to the least of these amounts:

Rs 2,000 per month 25 percent of total income for the year (excluding long-term capital gains and some specified incomes, before allowing deduction for any expenditure under this Section) Expenditure incurred in excess of 10 percent of total income towards rent (excluding long-term capital gains and some specified incomes, before allowing deduction for any expenditure under this Section)

The deduction will not be available to an assessee in case a residential accommodation is owned by him, his spouse or minor child, at the place where he ordinarily resides or carries on his business. Also, the deduction will not be available to an assessee in case a residential accommodation is owned by him at any other place, provided this accommodation is occupied by the assessee, and the concession available for a self-occupied house has been claimed by him under Section 23 for this property. In such a case, no deduction will be allowed on the rent paid, even if the person does not own any residential accommodation at the place where he ordinarily resides or carries on his business.

These provisions enable self-employed people and others not in receipt of HRA to claim deduction on the rental expenses incurred.

Basic steps for those planning to buy a house

Everyone dreams of owning a home. It is a major decision. At one time, people used to buy a home only close to retirement when they had sufficient savings. However, the scenario has changed quite a bit in the last decade or so. Nowadays, people buy a house in their mid to late 20s. In some cases, even before marriage. This could be attributed to many factors. A rise in the earnings of the middle income group, easy financing, aggressive marketing of properties and tax rebates provided by government to promote infrastructure development are some.

Here are some tips to help you buy that dream home as soon as possible:

Planning and research

This is the first step in buying a property. You need to decide on the locality, space-cost factor, flat or independent house etc. It is ideal to make enquiries and research each of these thoroughly. This validates and refines your thinking, and helps in taking the right decisions.


Planning finances

Buying a property is a major financial decision. Often, it happens once in a lifetime. It is always advisable to go in for a housing loan. These loans are easily available and the government offers tax relief to home loan borrowers.
If you are planning to buy a property in the near future, you should plan your finances for an upfront payment too. Usually, a property buyer has to pay 10 to 15 percent upfront from his own resources. A loan covers the rest of the amount. Therefore, it is important to plan and arrange for such an amount if you are planning to buy a property in the near future.
People who are planning to buy a property 2-3 years down the line can look for slow and steady savings through market instruments - mutual funds, systematic investment plans, investing in blue chip stocks etc. However, people looking at buying a property in the next few months should save in debt instruments which safeguard capital.

Loan eligibility

A housing loan disbursement was quite easy a couple of years ago. Housing finance companies have tightened the process a little now due to the slowdown in the economy. However, there is no dearth of options for buyers who plan well. Usually, banks scrutinise these documents to arrive at the loan eligibility of a borrower. People planning to buy a property in the near future should keep them in mind and plan accordingly, to sail through the process of loan disbursement easily.

Documents that go into arriving at loan eligibility:

Tax returns:

Last three years' income tax returns or Form 16 are checked for consistency in earnings. Large variations in income go against the applicant.

Bank statements:

Usually, banks like to verify the last 3-6 months' bank statements. This is to identify various monthly cash outflows of the borrower. People planning to take a loan in the near future should avoid any unnecessary transactions.

Work history:

This is another important aspect. A long stint with the current employer is seen as a positive sign. Similarly, a good reputation and corporate image of the employer creates a positive impact.

Loan history:

Any previous loan default is treated as a serious negative by banks.

Registration must while gifting property - Some conditions to make a valid gift of property

A gift of property may be made within the family by a father to his son, daughter, wife or brother. It can also be made by a mother to her son or daughter and from grandparents to their grandchildren. The gift should be made through a registered document signed by the donor or on behalf of the donor, attested by at least two witnesses. An authorised representative of the donor may also make a gift. The authorisation, i.e., the power of attorney (POA) given to the representative, should be clear about the provision for making a gift. The power of attorney should be properly stamped as per the applicable laws.

A gift has to be made in writing and needs to be registered. A proper gift deed needs to be executed between the donor and the donee. The Transfer of Property Act stipulates that the acceptance has to be made during the lifetime of the donor and when the donor still capable of giving a gift. As the gift deed needs to be registered, the acceptance of the gift is usually recorded on the gift deed itself.

In certain circumstances, a gift can be suspended or revoked. It depends on the contents and conditions of the gift deed. Both the donor and donee must agree to such conditions.

A gift may be cancelled or rescinded on these grounds:

• On occurrence of any event which is specified in the gift deed
• Both the parties should have accepted the conditions and the donee should have agreed to such conditions while accepting the gift
• The proposed event, which suspends or revokes the gift, should be beyond the control and will of the donor
• The condition should not be illegal or immoral There should be absence of any kind of consideration.

Although there is no consideration received against a gift, it attracts stamp duty and registration changes as applicable to a sale deed. However, there is some concession for a gift to family members (spouse, son, daughter, daughter-in-law and grandchildren). The maximum stamp duty is Rs 1,000 and an additional cess of Rs 50 plus infrastructure cess. The registration fee is Rs 500 in such cases.

A document of gift of property is compulsorily registrable. A gift is given on consideration of affection, and no monetary consideration is involved. So, any gift deed irrespective of the value of the property gifted needs registration.

Sometimes, a gift is made to two or more persons and any one of them may not accept the gift. For example, a gift may be made by a father to his son and daughter, and the daughter may refuse to accept the gift. In such a case, where one of the donee does not accept the gift, the gift is not invalid completely. The gift becomes inoperative and void for the donee who does not accept it. The other donee who accepts the gift is entitled to what is gifted to him only. One donee will not have any rights, interests, or title to the property which was not accepted by another donee. Only the portion gifted to a donee belongs to him and the unaccepted portion reverts to the donor.