If the transaction is at arms length, then there is no issue. However, if the transaction is done with your relatives or friends, then you may be questioned the logic behind paying additional rent and your claim may therefore be disallowed.
Questions on sublease hra and tax
A is owner of house, B is tenant (pays 10000), B sublets to C (C pays B 20000). Rent agreements are proper with sublet clause. Assuming area rent rate for house is not a issue. - Can C claim HRA on 20000 paid to B, with rent recipt signed by B. (A wont sign for C) - B will show income in other income, but would it be 20000-10000 as 10000 is his own cost which is paid to A. or he need to show complete 20000-some expenditure he makes for subletting. - A only need to show 10000 in income from house property, is that right? Note: I am more on correctness of procedure then being ethical.
Asked 6 years ago in Income Tax
Please answer on above three points as well, and claims from C has been allowed by finance dept of the private company of C, So who will disallow, Do you mean if Income Tax department picks this up for scrutiny? But then to me this is a legal process.
Asked 6 years ago
Assuming that the transaction is genuine, the answers to your queries are as under:
1) C can claim HRA on Rs 20K paid to B based upon the receipt given by B.
2) B needs to show this as income from other sources towards sub-letting of rented accommodation. He will be able to claim the expenditure of Rs 10K, only if there is a valid receipt from B or such payment is as per the lease deed between A and B.
3) A needs to show Rs 10 K as his income from house property.
Hi
Yes, C can claim the HRA.
B will show 10000 as other income.
A will show 10000 as House property income.
# Rent agreement between A and B should give B the power to sub-let.
# It is a point of litigation and may lead to scrutiny as PAN of house owner A has to be given while claiming HRA claim and rent will be shown as 20000 where as A will file return as 10000 income. The mutual agreements can be shown later at the time of scrutiny as proofs.
1. Yes, C can claim HRA.
2. yes, B can deduct the rent paid by it to A from 20k and net taxable amount will be 10k
3. Yes, you are right. A will show 10k as rental income.
Please note that if any of the two parties from A B and C are related, then income tax officer may create complexities. But I don't see any risk of tax adjustment.
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