About availing the benefits of HRA in Income Tax

Living in a rented house? You can get a tax break. This benefit is available for both salaried and non-salaried persons, irrespective of whether you get house rent allowance (HRA) from your employer or not. Budget 2016-17 increased the concession for those who don’t get HRA. In both cases though, there are ifs, buts and limits to the benefit.

Tax exemption on HRA

Section 10(13A) of the Income Tax Act entitles you to claim tax exemption on the HRA amount received from your employer. For this, you must live in a rented residential accommodation, and pay rent for the same. So, if you stay in your own house or in one where you don’t pay rent, you don’t get the exemption. Also, there is no tax break if you pay rent to your spouse. The benefit is available if you pay rent to others, including parents and in-laws.

Note that you should have actually paid the rent to get the tax break; if the amount is due but not paid, sorry, there is no benefit. Keep rent receipts from your landlord handy; your employer may ask for them before adjusting the monthly tax amount.

Fulfil these conditions and the tax break is given, but subject to limits. The exemption is limited to the least of the following amounts:

a) HRA amount received

b) Rent paid in excess of 10 per cent of salary

c) 50 per cent of salary if you live in Mumbai/Delhi/Kolkata/Chennai or 40 per cent of salary if you reside in other cities. Salary equals Basic Pay plus Dearness Allowance.

So, if the rent paid does not exceed 10 per cent of the Basic plus Dearness Allowance, you get no tax exemption. Also, the exemption is allowed only for that part of the year when you have rented the house.

So, for instance, if you get HRA for the entire 12 months of the financial year but have rented a house only for eight months, you get the tax break on a proportionate basis.

Tax deduction without HRA

What if you don’t get HRA but still incur rental expense? Businessmen, self-employed and even some salaried people who do not get HRA could be paying rent. Section 80GG of the Income Tax Act provides tax relief to such rent-payers. There are many conditions to be fulfilled and the break, despite the recent hike, is not really much.

To be eligible for the Section 80GG break, you must not get HRA for even a part of the year. You must pay the rent for the house you live in; there is no deduction if you pay rent for a house in which not you but someone else (say, your parents) lives.

Next, you, your spouse, minor child or Hindu Undivided Family must not own a house in the place in which you live, or work, or carry on business.

Also, if you own a house at another place, which you declare as self-occupied (that is, use it for your own residence) you don’t get the deduction under Section 80GG. For instance, say you rent a house in Delhi where you work but you also own a house in nearby Noida which you occupy as your residence. In such a case, you are not eligible for the deduction. Seen together, these rules are quite restrictive — it means that you can claim the deduction only if you do not own and occupy a house anywhere, and if your spouse or minor child or Hindu Undivided Family does not own a house in your place of stay. To claim the deduction, you must file a declaration in Form No. 10BA.

On satisfying all the above conditions, the tax deduction you can claim is the least of the following:

a) ₹5,000 a month from 2016-17 (earlier it was ₹2,000 a month)

b) Rent paid in excess of 10 per cent of your total income

c) 25 per cent of your total income.

Here, total income means your income considering all deductions except that under Section 80GG.

In effect, the maximum deduction on rent paid if you do not receive HRA from your employer is ₹5,000 a month (₹60,000 annually), irrespective of how much you shell out as rent.

Credits The Hindu Business Line

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