CA Tejinder Pal Singh

CA Tejinder Pal Singh

House Rent Allowance (HRA) is a common component of the salary structure. Although HRA is a part of the salary, unlike basic salary, is not entirely taxable. Subject to certain conditions, a part of HRA gets exempted under Section 10 (13A) of the Income-tax Act. The tax benefit on HRA is available only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented accommodation. Self-employed professionals cannot avail the deduction.

Amount of Exemption on HRA Benefit — Section 10 (13A)

The exemption for HRA benefit is the minimum of:

i) Actual HRA received

ii) 50% of salary if living in metro cities, or 40% for non-metro cities; and

iii) Excess of rent paid annually over 10% of annual salary (Rent paid minus 10% of Salary)

For Calculation purpose, Salary = Basic Salary + Dearness Allowance (DA) (if it forms a part of retirement benefits) + commission received on the basis of sales turnover

The tax benefit is available to the person only for the period in which the rented house is occupied.

Example of HRA calculation

Let’s say an individual, with a monthly basic salary of Rs 15,000, receives HRA of Rs 7,000 and pays Rs 8,400 rent for an accommodation in a metro city. The tax rate applicable to the individual is 20 percent of his income.

To avail HRA benefit, the least of the following amount  is exempted, rest is taxable:

i) Actual HRA received = Rs 84,000 (7,000 * 12)

ii) 50% of salary (metro city) = Rs 90,000 (50% of Rs 1,80,000)

iii) Excess of rent paid annually over 10% of annual salary = Rs 82,800 (Rs 1,00,800 – (10% of Rs 1,80,000))

It shows that of Rs 84,000 actually received as HRA, Rs 82,800 gets tax exemption and only the balance of Rs 1,200 gets added to the employee’s income, on which a tax of Rs 240 ( 20 per cent slab ) gets payable.

Documents Required

HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.
It is mandatory for the employee to report the Pan Card of the ‘landlord’ to the employer if the rent paid is more than Rs 1,00,000 annually, or if it exceeds Rs 15,000 per month.

Some Special Cases:-

  1. The rented premises must not be owned by the person claiming the tax exemption. So if you stay with your parents and pay rent to them then you can claim that for tax deductions as HRA. However, you cannot pay rent to your spouse. As, in the view of the relationship, you are supposed to take the accommodation together.
  2. One can avail the simultaneous benefit of deduction available for the home loan against ‘interest paid’ and ‘principal repayment’ and HRA in case your own home is rented out or you work in another city.

Individuals who don’t get HRA but pay rent — Section 80GG

Self employed professionals and Salaried individuals who has not received HRA but they actually paid the rent can claim deduction under section 80GG.

Amount of Deduction — Section 80GG

The least of the following is available for exemption from tax under Section 80GG:

(i) Rent paid in excess of 10% of Adjusted Income (Rent Paid minus 10% of Adjusted Income)

(ii) 25% of the total of the Adjusted Income

(iii) Rs 5,000 per month

For Calculation purpose, Adjusted Income = Gross Total Income minus Long term capital gain minus Short term capital gain of 10% category minus Deductions under sections 80C to 80U except section 80GG and income of foreign company.

Example of Section 80GG

Mr. A annually earns Rs. 3,00,000 (after all deductions) and pays an annual rent of Rs. 1,50,000. In such a case, the deduction allowed would be least of the following;

  1. 5000 per month i.e. Rs 60,000 per annum
  2. 25% of 3,00,000 i.e. Rs 75,000
  3. 1,50,000 minus 10% of 3,00,000 i.e. Rs 1,20,000

Deduction allowed under section 80GG is least of the above i.e. Rs 60,000

Conditions for claiming deduction under Section 80GG for Rent Paid:-

  1. Deduction under Section 80GG for Rent paid is only available to an Individual or HUF.
  2. The taxpayer is either Self employed or Salaried (but does not receive any benefit of deduction under Section 10(13A) for House Rent Allowance)
  3. The taxpayer himself or his spouse or Minor child should not own any accommodation at the place where he is employed or carries on his business or profession.
  4. If the taxpayer owns any property at any place other than the place mentioned above, he should not be claiming benefit of that property as self occupied property. That other property would be deemed to be let out.
  5. Individual needs to file declaration in form 10BA that he satisfies all the conditions stated above.

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11 responses to “HRA Taxability & Section 80GG Deduction on Rent Paid”

  1. Mangesh Chadar says:

    Sir,
    In FY 2016-17,I worked in an organisation (April 2016 to December 2016) where I have not received HRA but I paid the rent.Then I switched to another organisation where I am receiving HRA since January 2017.

    I want to know, Can I claim deduction under section 80GG [for April-16 to DEC-2016] and under Section 10 (13A) [for HRA January-17 to March-17] in same FY 2016?

  2. sainath says:

    Sir,

    ” for the employee to report the Pan Card of the ‘landlord’ to the employer if the rent paid is more than Rs 1,00,000 annually, or if it exceeds Rs 15,000 per month”

    Owner’s PAN is mandatory if rent more than 8333Rs per month or 15000Rs per Month?

  3. Navneet Chandra says:

    My landlord is NRI , so how I cut TDS from him

  4. kishorB says:

    Dear Sir,
    Is the exemption of Rs 5000 per month under 80GG as rent applicable for the FY 2016-17? Kindlt reply.

    thanks,
    kishorB

  5. kamal says:

    Meaning of adjusted total income seems to be wrong. Please refer the section 80GG in the Act. Please revert at cakamalmurarka@gmail.com

    • CA Tejinder Pal Singh says:

      Hello kamal ji,

      It is correct.

      Regards
      CA Tejinder Pal Singh
      Abhianchal and Company
      Chartered Accountants
      +91-7814307690

  6. Dinesh Kumar says:

    Dear Tejinder Pal ji,

    In Some cases, It has mentioned that Individual can’t claim the HRA benefit if rent pays to spouse. However, in the case of Bajrang Prasad Ramdharani Vs Assit. CIT on 28 June, 2013 by ITAT bench Ahmedabad. allows the deduction for the Rent paid to the spouse.

    Only Two basic conditions to avail is:

    • the residential accommodation occupied by the assessee is not owned by him.
    • the assessee has actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him.

    Hope it helps.

    Thanks

    • CA Tejinder Pal Singh says:

      Dear Dinesh Ji,

      Appreciate your Comment.
      Thanks for sharing the case law.
      otherwise it is very difficult for assesse to prove that they actually paid rent to spouse as in the view of the relationship, they supposed to take the accommodation together.Still these transactions can invite the scrutiny from the Income -tax Department

      Regards
      CA Tejinder Pal Singh
      Abhianchal and Company
      Chartered Accountant
      +91-7814307690

  7. subir Purkayastha says:

    Sir i have one quiry. if consolidated salary of Rs 30000/ and EPF deducted from consolidated salary. person reside in a rented house but there is no breakup of HAR in his salary structure . does he claims HRA exemption by giving HRA agreement .

    • CA Tejinder Pal Singh says:

      Hello Subir ji,
      You can claim deduction of rent paid under section 80GG if you are not received HRA as a component of salary.
      you can claim HRA exemption only if you receive HRA from your employer. If your employer declare amount of HRA in your salary( Rs. 30,000) then only you will be eligible for HRA exemption.

      Regards
      CA Tejinder Pal Singh
      Abhianchal and Company
      Chartered Accountants
      +91-7814307690

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