Be it Delhi-NCR, Mumbai or Bangalore, metropolitan cities are the melting pot for the job seekers. A plethora of people come to these megalopolises every day to test their destiny.
The cost of living in a megacity is really high, hence, the employers pay House Rent Allowances (HRA) to the employees.
There are some companies who do not provide House Rent Allowances (HRA) even when some of their employees are living in the rented accommodations.
This post by Bullmen Realty is to make our readers updated that what are the tax benefits of house rent. Take a look.
Also Read: When to Rent and When to Buy a Property???
Tax Benefits to Employees Who Get HRA From Employers
People who are availing House Rent Allowances (HRA) from their employers as part of their salary are entitled to get tax exemption under Section 10 (13A) of the Income Tax Act.
There are certain limitations and condition with the amount of House Rent Allowances (HRA) received by you.
The first one is that you should be staying in a paying accommodation. The accommodation must be in the same city where you are working. Apart from this, you should not be the sole or co-owner of the property, where you are staying.
The amount of deduction largely depends on the location, where the tax payer is staying. The exempt amount of the House Rent Allowances (HRA) would be the lowest of the following:
- Actual House Rent Allowances (HRA) received
- 50% of the salary (for the taxpayers residing in the metropolis cities, such as Delhi, Mumbai, Chennai or Kolkata)
- 40% of the salary (for taxpayers living elsewhere)
- Excessive amount of the rent paid reduced by 10% of the salary
The amount of salary for this purpose include dearness allowance, basic salary and bonus fixed as turnover. All other allowances are excluded from this. In addition to this, the exemption amount of the salary will only be considered only for the period for which the rent is paid.
Tax Benefits to Employees Who Do Not Get HRA From Employers
Those employees who are part of a company but do not get their House Rent Allowances (HRA) are subjected to Section 80GG of the Income Tax Act that permits them to avail tax benefits on house rent. Not just employees, even those who are self-employed people can also use this act in their total income.
However, this deduction is limited to only the 25% of the total annual income, or the amount exceeding the actual rent paid over 10% of the total annual income.
The maximum amount of deduction that one can claim in a year is ₹5000 per month or ₹60000 annually.
It is to be noted and in favour of renters that this deduction is not at all based on the time period for which the premises is rented. So, this way, anyone is liable to claim full deduction even if the accommodation is taken on rent for one month only.
But, there are a few limitations that comes with this benefit. You cannot claim tax exemption if:
- Your spouse or minor child owns any other residential premises in the same region.
- You are a member of the Hindu Undivided Family (HUF), and any of its member owns a property in the same region.
- You own a residential property at any other place that is not let-out by the claimant.