For most employees, home rent allowance (HRA) is part of their salary income. However, some small
and medium-sized companies can pay a single amount of money to employees without separation.
For a hired employee, in order to claim deductions, HRA should be part of his salary income. However, the Income Tax Act 1961 provides for a deduction in respect of the rent paid to workers, even if the HRA is not part of their salary.
Such workers may claim a deduction in respect of house rent paid under section 80GG of the Income-tax Act. The rules also apply to self-employed persons. Now we make out the limits and criteria under which one will be able to claim tax exemption under section 80GG.
To get these benefits as well as deduction U/s 80GG, you should not receive HRA in any part of your financial year. Arun Kumar, a Kolkata-based chartered accountant, said, "Taxpayers seeking exemption from HRA cannot claim a deduction for rent paid under section 80GG."
A person seeking a deduction under section 80GG should not own a home in a residential town. In fact, there should be no house in the name of wife, minor child or Hindu Undivided Family (HUF) in which the person is a member, in which the office is located or business is done.
So, if you have a family home in the town where you work, you cannot claim this discount.
The taxpayer must file a Form 10 BA; Only then can he claim this discount. It is a declaration made by the person that all the conditions of the department are met.
Taxpayers who opt for the alternative, or the new tax system, cannot claim this discount.
This is how it is calculated
The deduction must be calculated based on a formula. The deduction under this provision will be less than three: a) rent more than 10% of total income, b) 25% of total income, c) maximum Rs 5,000 per month. Therefore, the maximum discount allowed per year is Rs 60,000.
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