Many employed people live in rented houses. They have to pay rent to the landlord every month from their salary income. In big cities, a large part of the salary income goes towards paying rent. Under the Income Tax Act, 1961, a taxpayer can claim tax benefits on house rent. This reduces the tax burden on him. Let us know in detail about the rules for claiming income tax deduction on house rent.
What are the rules of HRA?
If you are a salaried employee and live in a rented house, then you can claim deduction on the rent amount. There are some conditions for this. There are mainly two provisions for tax benefits on the rent paid, which come under House Rent Allowance (HRA) and Section 80GG. HRA is usually a part of the employee’s salary. It is given to compensate for the expenses incurred on rent. However, it is important to keep in mind that tax benefits on HRA can be claimed only if the employee actually lives in the rented house and pays the rent every month.
How is HRA calculated?
There are three methods for calculating HRA. The method which gives the lowest HRA is used. First, the actual HRA received by an employee from the employer. Second, the amount that comes after deducting 10% of the basic salary from the amount of rent paid, tax benefit can be claimed on this amount. Third, if you live in a metro city (Delhi, Mumbai, Chennai and Kolkata) then 50% of your basic salary or if you live in a non-metro city then 40% of the basic salary.
What are the conditions for claiming HRA?
It is important to know some things before claiming HRA. First, you have to submit rent receipt to your employer. If your rent amount is more than Rs 1 lakh annually, then you have to give the details of the landlord’s PAN to the employer. Even if your salary does not include HRA, you can still claim deduction on rent under section 80GG. This provision is beneficial for those who are self-employed or whose salary does not include HR as a component.
What is the provision of section 80GG?
There are some conditions to claim deduction on rent under section 80GG. There are three methods for calculating rent, the method that gives the lowest rent will be applicable. First, rent of Rs 5,000 per month or Rs 60,000 per year. Second, the amount obtained after deducting 10% of the total income from the total rent paid. Third, 25% of the total income.
