Buying a house is a daunting task for salaried people in India as it requires huge investment. Even though several banks offer home loans, getting a home loan isn’t easy. If one manages to avail the loan facility, paying hefty instalments for several years is not easy for him. So, most of the salaried people prefer to live in a rented accommodation, at least for the initial period of their career. Understanding the problems of employed citizens, government offers tax deduction on HRA component of salary. Tax deduction on House Rent Allowance is a well-known tax benefit among the masses. However, there is a section of salaried class which does not get HRA or any similar component as part of their salary.
What if you don’t get HRA in your salary from your employer? Well, even if you don’t get such allowance, Income Tax Act has still got you covered. There is less known provision under the Act which allows employed individuals who do not get HRA to claim tax benefit. Section 80GG of the Income Tax Act, 1961 has provisions for such individuals to claim tax deduction if they house rent for their accommodation. To claim benefits under this section, one must satisfy the following conditions:
The individual, who is an employee, should not receive HRA or any equivalent allowance from his employer as salary.
The employee, his wife or his minor child should not have the ownership of the property where he resides.
If the employee is part of a HUF, he or his family should not own the place of his residence.
In case the employee owns a place other than his rented place of accommodation then he should not be claiming tax benefit on such property as self-occupied property. Such property would be deemed to be let-out.
To claim deduction under section 80GG, he also needs to file Form 10BA. This form proves that the employee is not claiming benefit of self-occupied property in any other location or the location where he is employed.
Under section 80GG, you can claim least of the following as tax benefit:
Rs. 60,000 per year (i.e. Rs. 5,000 per month)
An amount equal to the total rent paid minus 10% of the total income
25% of adjusted total income of employee
So, the least of the above mentioned amount is available as tax deduction irrespective of whether the house is furnished or semi-furnished.
Income Tax deduction under section 80GG is a less known and less claimed deduction. The main reason behind this is that most of the employers give HRA as part of the salary to their employees.
We can understand its calculation with the help of an example. Let’s assume that Mr. Arjun gets an annual salary of Rs. 3,00,000 after all deductions out of which he pays an annual rent of Rs. 1,50,000. In this case, the tax deduction allowed to him would be least of the following:-
Rs. 5,000 per month i.e. Rs. 60,000 per annum
Rent paid i.e. Rs. 1,50,000 minus 10% of total income i.e. Rs. 30,000 = Rs. 1,20,000
25% of total income i.e. Rs. 75,000
The least of the above can be claimed by him as a tax deduction. So, Rs. 60,000 would be allowed as a deduction under section 80GG for the complete Financial Year. Remember that filing Form 10BA is also needed to avail this deduction.
Here is a sample format of Form 10BA for your reference in case you want to claim this deduction.