Last week, we talked about the tax benefit to employees who get house rent allowance and live in a rented accommodation.

But what if you don’t get HRA but still pay rent? This could be the case with self-employed professionals, businessmen or even the salaried folk whose emoluments do not include the HRA component. The Income-Tax Act provides relief to this category of rent-payers, too.

Section 80GG covers the nuts and bolts of this tax deduction. The conditions to fulfil are onerous and the deduction is rather small. Still, a rupee saved is a rupee earned.

Conditions

To claim the tax benefit under Section 80GG, you must pay rent for the house you live in, and not get HRA for even a part of the year.

You cannot claim deduction on rent paid for a house in which not you but someone else (your parents, for instance) resides. Of course, you won’t be denied the benefit if anyone else lives with you in the house.

Next, to claim the tax benefit, you must not own a house in the place in which you live, or work, or carry on business. Your spouse or minor child or Hindu Undivided Family (if you are part of one) should also not own a house in that place.

So, if you or a person mentioned above owns a house in the city you live or work in, but you choose to stay in a rented place, then sorry — no tax relief for you.

There is one more condition. Say, you own a house at another place, which you declare as self-occupied. If you use it for your own residence, you don’t get the deduction. For example, say you rent a house in Mumbai where you work. But you also own a house in Thane (a neighbouring city) which you occupy as your residence. In such a case, you are not eligible for the deduction.

What these conditions mean is that you can claim the deduction only if you do not own and occupy a house anywhere, and if your spouse or minor child or Hindu undivided family does not own a house in your place of stay.

Finally, to claim the deduction you must file a declaration in Form No. 10BA.

Limits

Satisfy all the above conditions and you can claim tax deduction of an amount restricted to the least of the following: Rs 2,000 a month, rent paid in excess of 10 per cent of your total income or 25 per cent of your total income.

Here, total income means your taxable income from all sources (salary, capital gains, house property, business or profession, and other income) and considering all deductions except that under Section 80GG. See the accompanying table for an example.

In essence, the maximum deduction you can claim on rent paid if you do not receive house rent allowance from your employer is Rs 2,000 a month (Rs 24,000 annually), irrespective of how much you shell out as rent.

anand.k@thehindu.co.in

(This article was published on April 13, 2013)
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