Cannot Claim Tax Exemption On Amount Paid To Family

What you are doing is application of income earned and not an expenditure incurred to earn this income. There are no tax benefits for such application of income. This is nothing but gift to your family members.

If the family members are among defined relatives under Section 56(2) of the Income-tax Act, 1961, they will be exempted from paying tax on such gifts, which are otherwise taxable if the aggregate of the gifts exceeds Rs. 50,000 for each such person in a year.

Encashment of leave is exempt under Section 10 up to Rs 25 lakh, subject to maximum of 10 months accumulated leave received on retirement or resignation. For central and state government employees, the full amount of leave encashment is exempt, without any limit.

This limit of exemption is available for all the employments taken together and not for each of the employer. Please note that the exemption is not available for encashment of leave availed by you during your employment. So, the leave encashment received on your resignation will be fully tax-free in your hand.

In case the property is let out, the employee will have to provide details of the rental income to the employer for computing the income from house property, as loss beyond Rs 2 lakh cannot be adjusted against the salary income for the purpose of tax deduction at source (TDS).

The employer will, therefore, ask for the rent agreement or any proof to verify the amount of rent received by the employee. However, while filing the income tax return (ITR), the employee can claim the full interest while calculating the house property income, but any loss beyond Rs 2 lakh will have to be carried forward for set-off in subsequent years.