Author: Irfan S V

An individual who is not in receipt of HRA makes payment towards rent for accommodation (furnished or unfurnished) for the purpose of his own accommodation can claim deduction under section 80GG towards the rent paid by him.

The admissible deduction will be the least of the following:

1) Actual rent paid minus 10% of his total income

2) 25% of his total income

3) Rs. 5,000 per month

Notes:

a) Total Income means assessee’s total income before allowing deduction for any expenditure under this section.

b) The assessee should not be in receipt of HRA

b) The assessee will have to file a declaration in Form No 10BA

The following conditions need to be met to claim deduction under this section:

1.  The assessee or his spouse or his minor child or HUF in which he is a member – do not own any   residential accommodation at the place where the assessee currently reside, perform duties of office, or employment or carry on business or profession.

2.  The assessee should not own any residential property at any place, for which Income from house Property is calculated under applicable sections.

Example:

Mr.Athul, a small businessman, earns Rs. 6,60,000 for FY 2019-20. He paid house rent of Rs. 12,000/month in respect of residential accommodation occupied by him at Bangalore. It is assumed that all the conditions to claim Section 80GG is satisfied by him. The eligible deduction will be the least of the following:

• 

In the above example Mr. Athul can claim a maximum deduction of Rs.60,000 under Section 80GG towards the rent paid by him.

HRA is a special allowance specifically granted to an employee by his employer towards payment of rent for residence of the employee. HRA can be claimed by people who get HRA in their salaries or by individual tax payer.

How to calculate HRA :

• Actual HRA
• Rent paid(-)10% of salary for the relevant period
• 50% of salary for the relevant period (in metro cities (Delhi, Kolkata, Mumbai, Chennai)
• 40% of salary for the relevant period (other cities)

Whichever is lower is taken as HRA.

Example:

Mr. Vineesh, employed in Delhi, has taken up an accommodation on rent for which he pays a monthly rent of Rs.15,000 during the Financial Year (FY) 2019-20 i.e. Assessment Year(AY) 2020-21. He received a Basic Salary of Rs 25,000 and DA of Rs.2,000 every month. He also received a HRA of Rs.1,00,000 from his employer during the year. Let us understand the HRA component that would be exempt from income tax for the FY 2019-2020

• 

In the above example,the entire HRA received by Mr. Vineesh (Rs.1,00,000) from his employer is exempt from income tax.  

Notes:

1. “Salary” for the purpose means basic salary,dearness allowance in terms of employment and commission as a fixed percentage of turnover.
2. “Relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.
3. Exemption is not available to an assessee who lives in his own house,or in a house for which he has not incurred the expenditure of rent. Such an assessee can claim 80GG deduction under Chapter VI-A.