Rental Income Cannot Be Set Off Against House Rent Under Income Tax Laws

I am planning to rent out my apartment for Rs. 30,000 per month. I am moving to a rented apartment with a monthly rent of Rs. 20,000. Is it permissible under income tax laws to club both cases and I pay tax only on the difference of Rs. 10,000, or are both cases required to be treated independently.

The rental income from letting out of the property is taxable under the head “Income from house property” and there is no provision under the Income-tax Act, 1961 to net out the rent paid against rental income. So, you will have to treat both cases separately.  

Your rental income would be computed by deducting 30 per cent of the rent received from the gross rent received. In case you have borrowed any money for purchase, construction, repair or renovation of the property, you can claim such interest against net rental income. Subject to restriction of that the loss beyond Rs. 2 lakh under house property for all properties taken together cannot be set off against other income.

As far as tax treatment of rent paid by you is concerned, you can claim house rent allowance (HRA) exemption in case you are in receipt of HRA from your employer. In case you are not receiving any HRA, or you are self-employed, you can claim deduction under Section 80GGA of the Income-tax Act, 1961 for rent paid.

My father passed away in April 2023. He had received a gift cheque from his sister before his death, but it could not be deposited in the bank due to some reason. The cheque is still valid as per the date. Can it be deposited in his account now?

Under the Indian Contract Act, 1872 in order to make a transaction of gift complete, the gift has to be accepted by the donee during the life time of the donor. In case of gifts made by cheque, acceptance of the cheque partly completes the transaction of the gift, but does not get fully completed till the cheque is deposited in the bank account as token of final acceptance of the gift. Since the gift was not completed during the life time of your father, the gift remains inconclusive and you cannot deposit the cheque in his bank account now.

I have taken a new home loan with my wife as the co-borrower. She is a co-owner as well. We have paid Rs 2 lakh in interest in FY23. Can I claim a deduction of Rs. 1.50 lakh and Rs. 50,000 under Section 24 of the Income-tax Act, 1961, in respect of the interest paid while filing the income tax return? Can we change the ratio to claim the interest in future?

The tax benefits in respect of home loan is available provided the person is a co-owner of the property as well as co-borrower to the bank loan. This benefit is available to such co-borrowers in the ratio of their share in the home loan. So, each joint borrower will get the benefit in the ratio in which they are servicing the home loan. The ratio of each of the co-owner of the property gets crystallised when the full payment of the property is made. It is the ratio in which each of the co-owner has contributed towards the cost of the property.

The home loan ratio need not be the same as the ownership ratio. Some of the co-owners may fund their contribution for share in the property from their own sources, whereas other borrowers may fund it partly or fully through borrowed money. From this discussion, it becomes apparent that share of each co-owner in the property as well as in the home loan cannot fluctuate, and it gets fixed at the time of purchase of the property. It cannot be changed later also. So, you can claim the interest paid in the ratio in which both of you are servicing the home loan year after year based on your share in the home loan and it will remain constant for the entire tenure of home loan. 

The author is a tax and investment expert

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