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    HRA & 80GG under Income Tax Act, 1961

    • Meaning: It is an allowance provided by the employer to his employee as a part of salary to meet the cost of rented house taken by the employee for his stay.

     

    • Governing section: Sec 10(13A) of the Income tax act, 1961.

     

    • Taxability provisions:

     

    1. Conditions:
    1. HRA exemption can be claimed only if employee stays in a rented house and pays rent for the house.

     

    1. The rented premises must not be owned by him otherwise the whole amount which he has received as HRA will be fully taxable.

     

    • The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.

     

    1. Taxability: The amount of exemption of HRA is to be considered minimum of the following three.

     

    1. Actual HRA received from Employer
    2. Rent paid (minus) 10% of salary*
    • 50 % of salary* if employee lives in metro city** or 40 % salary if employee lives in non-metro city

     

    Here,

    • Salary means (Basic Pay + DA + Fixed percentage of commission on turnover). **Metropolitan cities are Mumbai, Delhi, Chennai, and Calcutta.

     

    • Other points:

     

    1. Exemption is available even if the house is owned by close relative (Wife or husband or father or mother) and for which rent is paid by employee through bank transfer.
    2. To avail exemption there is no requirement that the employee should not own a house.

     

    • Examples:

     

    1. X resides in Mumbai and he gets Rs.7,00,000 as basic salary. He receives Rs. 2,00,000 as HRA. Rent paid by him is Rs. 1,50,000.Then HRA exemption will be calculated as follows.

    Solution: As per the above formula minimum of 3 is the amount of exemption. so, (i)Actual HRA received = 2,00,000

     

    • Rent paid minus 10% of salary = 1,50,000-70,000 = 80,000
    • 50% of salary = 7,00,000*50% = 3,50,000

    Minimum of the above is 80,000.

    So taxable HRA = Actual HRA received – Exemption = 2,00,000-80,000 = 1,20,000.

     

     

     

     

     

     

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    1. Suppose in the above problem rent paid is 80,000 and basic salary is 10,00,000 then (i)Actual HRA received = 2,00,000

    (ii) Rent paid (minus) 10% of salary = 80,000-1,00,000 = (20,000) (iii) 50% of salary = 10,00,000*50% = 5,00,000

     

    Minimum of the above is (20,000)by which it can be understood that no HRA exemption is available.

     

    The entire amount received as HRA from employer is taxable.

     

    Deduction in respect of Rent paid, If HRA is not received (U/S 80GG)

     

    • Chargeability: Sec 80GG of the Income tax act, 1961.

     

    • Applicability: Individuals & HUF

     

    • Conditions: Upon satisfaction of the following conditions an assessee is allowed deduction under Sec 80GG.

     

    1. Assessee shall be self-employed and/or a salaried person who is not in receipt of HRA at any time during the previous year.
    2. He or his spouse or minor child or HUF of which he is member should not own any residential accommodation at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profession or

     

    1. Owned by the assessee at any other place, but the value of which is not determined under sec 23(2)(a) or Sec 23(4)(a) as the case may be [i.e. Annual Value as Nil].

     

    If all the above conditions were satisfied the employee should give declaration in form 10BA to claim deduction u/s 80GG

     

    • Amount of deduction:The lower of the 3 is the amount eligible for deduction under Sec 80GG.

     

    1. Rent paid (minus) 10 percent of Adjusted total income

     

    1. 2000 per month(Limit has been increased to Rs 5000/- per month from AY 2017-18 as per proposed Budget 2016)

     

    1. 25 percent of the Adjusted total income

     

    1. i) “Adjusted Total income” Means

     

    Gross total Income (minus) Long term capital Gain (minus) Short term Capital Gain u/s 111A (minus) Deductions u/s 80C to 80U (Except 80GG) (minus)anyForeign Income u/s 115A or 115D.

     

    • Sec 111A:If an assessee has a short term capital gain arising from transfer of equity shares of a company or unit of an equity oriented fund and such transaction had occurred on or after the date on which Chapter VII of the Finance Act, 2004 comes into force and such transaction is chargeable to Securities transaction tax under that chapter then the amount of Income tax calculated on Short term capital gain is 15 Percent.

     

     

     

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    HRA & 80GG under Income Tax Act,1961

     

     

    SBS Interns' Digest                                                                                                                          www.sbsandco.com/digest

     

    • Sec 115D:This section says that in case of assessee being Non-resident Indian, no deductions of chapter VI-A should be allowed if his gross total income consist of only income from investment or income from long term capital gains or both.

     

    This section also says that if Gross total income includes any income referred above then the gross total income shall be reduced by the amount of such income and deductions under chapter VI-A are allowed as if the gross total income so reduced were the gross total income of the assessee.

     

    Examples:

     

    1. Let Mr X is a salaried employee of PQR Ltd in Hyderabad having income from salary as 8,00,000 (HRA is not provided by the employer).He pays Rs 10,000 as rent per month. He also had a Long term capital gain of Rs 2,00,000. Deduction under section 80C is 1,00,000. He owns a residential house in Vizag which is being let out. Can Mr X claim deduction under Sec 80GG?

     

    Solution:Mr X is a salaried employee and he does not own any residential accommodation in place of his employment but he owns at other place i.e. Vizag which is being let-out so Mr X can claim deduction under 80GG.

     

    Amount of deduction as per above provisions is calculated as follows:

    Gross total income = 8,00,000+2,00,000 = 10,00,000.

    1. 1,20,000 – (10,00,000-2,00,000-1,00,000)*10% = 50,000
    2. 2000*12 = 24,000
    • 7,00,000*25% = 1,75,000

    Lower of the above three is 24,000. So amount of deduction under Sec 80GG is 24,000.

     

    1. Suppose in the example (a) if Mr X does not Let out the property at Vizag and showing GAV of his house as Nil?

     

    Solution:Mr X cannot claim exemption under sec 80GG since he shows his GAV at Nil i.e. the house is shown as self occupied property.

     

    1. f) Suppose in the example (a) HRA is provided by the employer to Mr X then?

     

    Solution: Mr X cannot claim deduction under Sec 80GG since he is receiving HRA from the employer.

     

    Let Mr X is a salaried employee who had worked for PQR Ltd in Hyderabad for 11 months having income from salary as 8,00,000 (HRA is not provided by the employer) and remaining months for XYZ Ltd for a salary of 20,000 per month (Including HRA). He pays Rs 10,000 as rent per month. He also had a Long term capital gain of Rs 2,00,000. Deduction under section 80C is 1,00,000. He owns a residential house in Vizag which is being let out. Can Mr X claim deduction under Sec 80GG?

     

    Solution:Mr X cannot claim deduction under Sec 80GG since he received HRA for the previous year from the 2nd Employer.

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