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Save tax: Claim deduction without HRA

Last updated on: June 11, 2010 13:25 IST

Photographs: Rediff Archives Presha Investments

Many companies don't have home rent allowance, HRA, component as part of their employees' salary structure despite them leaving on rented accommodation. This makes it difficult for employees to claim deduction under section 10 (13A) and save some money in tax paid. But there is no need to feel disappointed.

There is another section -- Section 80GG -- that can still help salaried employees who live on rented accommodation save money in tax paid. To know how read on.

With tax season on, many of us would be calculating our tax liability and one of the deductions available is on rent in the form of HRA.

Most of us are aware of the deduction available with respect to HRA.

Section 10(13A): House Rent Allowance

You can take advantage of the provisions under this section if you are renting an accommodation. These provisions will not be available to you if you stay in a rent-free accommodation or live with your family or in your own house.

Under Section 10(13A), HRA is exempt to the least of the following:

i) 50 and/or 40 per cent of basic salary = dearness allowance (if, applicable)

ii) Excess of rent paid over 10 per cent of basic salary and

iii) Actual HRA received.

Now you have changed jobs and the new company has a policy where they do not have an HRA deduction component in your salary structure making 'actual HRA received' zero. This means that though you may be paying rent but you will not be eligible for the HRA deduction.

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Taking advantage of Section 80GG

Recently one of our friends came to us and we suggested him to claim deduction under section 80 GG.

Section 80GG allows you to claim deduction for rents paid.

Conditions for application of Section 80GG:

1. The assessee shall not be in receipt of any house rent allowance (income) income.

2. The assessee shall be residing in a rental accommodation.

3. Such rental expenditure shall exceed 10 per cent of the net total income but before considering these expenses.

4. The assessee shall not hold any residential property on her/his own name

5. The assessee or spouse or any children of the assessee and in case of assessee being a member of the Hindu Undivided Family (HUF) any member of such HUF shall not hold any residential property in the place where the assessee normally conducts his income earning activity.

This basically means the assessee can have only one residential accommodation and that too only on rental basis.

The family members can have property at places other than the place where the assessee normally conducts the income earning activity.

Claiming deduction under Section 80GG

If the above conditions are fulfilled then, such amount of expenses exceeding 10 per cent of the net total income shall be allowed as deduction from the total income.

However, such an excess shall not exceed Rs 2,000 per month or 25 per cent of the total income.

So if our friend is paying only Rs 12,000 as rent per month s/he will be eligible only for Rs 2,000 per month since there is a cap.

Meaning a maximum deduction will be Rs 2,000 x 12 = Rs 24,000 rupees per year.

If you belong to the highest tax slab you save more than Rs 8,000 rupees.

So no worries if your company does not give HRA you have got section 80 GG for you.