House Rent Allowances is one of those allowances that save a lot of tax for people who feel burdened by the same. Unlike many other salary components House Rent Allowance (HRA) is not completely taxable. Section 10 of 13A in Income Tax Act offers tax exemption to Income Tax Assessees base on different rental and related situations. To understand the exact rental scenarios in which you can claim deduction under the House Rent Allowance (HRA) head, we need to have clarity on who are really eligible to claim the same.
Who is actually eligible to claim HRA?
All salaried individuals who have House Rent Allowance (HRA) as one of the salary components as per their company’s salary structure and stay on rent can avail exemption under this head
Individuals who are self employed cannot avail deduction under the House Rent Allowance (HRA) head
Let us look at some rental scenarios that can save you from paying tax helping you claim House Rent Allowance (HRA) without any ambiguities.
Rental scenarios that support claiming House Rent Allowance (HRA)
Rental Scenario 1 – Rent paid for family members
(a) Assuming that you are living with your spouse, any payment made by you to your spouse towards rent is not acceptable under the Income Tax rules. This is mainly because the husband is deemed to be staying with the Wife both legally as well as on moral grounds
(b) Assuming that you live with your parents and are paying an amount every month to your parents in the name of rent. If the house you are living is in your name, you cannot claim HRA deduction since you are living in your own property
(c) Assuming that you are living with your parents and the house is in their name, then you can claim HRA exemption. The amount you pay to your parents towards rent is accepted under the HRA clause.
(d) Assuming that you are living away from your parents but you are staying in a property that belongs to them. The amount you pay to them as rent will be considered for tax exemption. It is important that have all documents pertaining to the tenancy and rent payment are maintained in the perfect manner.
Rental Scenario 2 – Rent paid for own house
(a) Assuming that you own a house and you have purchased the same taking Housing Loan. You can claim Income Tax deduction towards the interest you pay for the same,here HRA Cannot be claimed.
(b) Assuming that you own a house and you are not residing in the same since you are staying in an outside city. You can claim Income Tax deduction under section 24 B Interest deduction and principal Repayment under section 80 C and House Rent Allowance (HRA) towards the rent you pay for the same.
It is important that you maintain and submit all relevant documents (for interest payment and rent payment) at the time of filing Income Tax Returns. This will help you claim the best possible tax benefit from two different angles.
Rental Scenario 3 – Individuals paying rent without HRA component in their salary structure
(a) There are cases where salaried individuals do not have House Rent Allowance (HRA) as one of the components in their salary package. If such individuals stay in rented accommodation then Income Tax Act facilitates them claim deduction towards rent paid through a special section 80GG available for the purpose. Exemption under this section can be claimed by the individual by submitting the duly filled in Form 10B at the time of filing the Income Tax returns.
(b) Income Tax exemption can be claimed towards rent paid by salaried individuals under section 80GG both for furnished and unfurnished accommodation
(c) As per Section 80GG you are eligible for claiming deduction under the same when the rent you pay is minimum 25% of the total income you earn. The other criteria you must satisfy to claim income tax deduction under Section 80GG is if the same is at least Rs. 5000/- and is 10% excess payment above the total income.
(d) For the purpose of claiming income tax deduction under 80GG the total income is arrived at by subtracting the long term capital gains, short term capital securities and deductions claimed under various sections like 80C to 80U from the overall total gross income.
(e) For claiming income tax deduction under 80GG, it is important that neither the individual nor the spouse or the minor child if any or any members of the HUF must own any property. If any of the above members have property of their own, claiming income tax deduction under 80GG is not possible.
(f) As per the Income Tax rules, claiming income tax deduction under 80GG is not encouraged when rental income is received by the Income Tax Assessee from any other property. This is applicable irrespective of the fact if the property is in his own name or of the spouse or in the name of a minor child or any members of the HUF.
(g) Any individual who wants to claim deduction under Section 80GG cannot do so if in case he claims exemption for Interest Paid towards housing loan taken for a property or he earns rental income from a property
Remember, Taxable income is usually calculated after the deduction of deductible House Rent Allowance (HRA) based on the rental situations of the individual concerned. Provision under Section 80GG can be used by select individuals who are deprived of certain benefits under their salary structure. Get in touch with your Financial Advisor who keeps himself abreast of current applicable scenarios on a regular basis. Financial Consultants can guide you in terms of planning for financial enhancements out of properties while addressing the tax aspects in the perfect manner. The end to end guidance provided by Financial Advisors will help you plan your tax towards your properties as well as claim deduction towards heads concerned with the same in the a maximum profitable manner.