A is employed with XYZ Ltd. His salary is ₹1,00,000 per month. He is also paid house rent allowance of ₹20,000 per month. His wife B is also employed at a salary of ₹40,000 per month with ABC Ltd. where A holds 20% share

CS Professional · Advanced Tax Laws and Practice · PYQS · December 2018
A is employed with XYZ Ltd. His salary is ₹1,00,000 per month. He is also paid house rent allowance of ₹20,000 per month. His wife B is also employed at a salary of ₹40,000 per month with ABC Ltd. where A holds 20% shares. B does not hold adequate qualification for the post which she is holding. B is the owner of a house which is self-occupied by the family. The house was constructed in the year 2015-16 with borrowed funds. Suggest a scheme for tax planning to minimise the tax liability for the financial year 2017-18 (assessment year 2018-19).

Answer & Explanation:

A is advised to reduce his share holdings with XYZ Ltd. from 20% to 19% to avoid clubbing of salary income of B (A's wife) u/s 64(1)(iv). B should not treat the house as self occupied. She should let it out to A and issue a rent receipt of an amount say ₹40,000 per month. On the basis of rent receipt, A is entitled to claim the exemption in respect of House Rent Allowance 'HRA' to reduce his tax liability. Besides, B can claim the exemption in respect of interest payable on housing loan.

Topics: Income Tax Act, 1961

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