Generally, employers pay the HRA (House Rental Allowance) for the employees living in a rented house. Income tax laws provide benefits to the employees who do not own home and live in a rented house.
Tax benefits on House Rents are of two types:
i) Benefits for Employees who receive HRA from Employers
Under Section 10(13A) of the Indian Income Tax Act, an employee is entitled to tax exemption according to the House Rental Allowance received from the employer. The accommodation of the employee must be in the same location where he or she is employed. Also, the employee should be neither a co-owner or a solo owner in the accommodation that he/she is living. However, the exempted amount related to House Rental allowance will be the lowest of the following.
- Actual House Rental Allowance Received
- 50 % of the salary of the employees staying in metropolitan cities of Kolkata, Delhi, Chennai, Mumbai or 40 % of the salary for the employees living in non-metros of India.
- If the excess of the rent paid over 10 % of the employee salary.
The term Salary includes DA (Dearness Allowance), Basic Salary and any fixed commision. For the procedure of computing the exemption, the salary for the period of which the employee is paid will be considered. Also note that there would be no tax benefit related to House Rental Allowance if the rent do not exceed 10% of the employee salary for that relevant period.
ii) Benefits For Self-Employed and People who are ineligible for HRA
If you are self-employed or an employee who does not receive any HRA from your employer, you can claim tax benefit under Section 80G of the Indian Income Tax Act. This tax benefit is allowed on individuals Total Income earned in that particular year. The deduction is restricted to either 25 % of total income or any excess rent paid that is over 10 % of the individual’s total income. Also, the maximum amount an individual can claim is Rs.60000 in a year. Moreover, If your minor child or spouse owns any residential house in the same region you cannot claim this tax benefit.
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