The house rent allowance comes under the salary income of the majority of employees. However, some small and medium-sized firms might provide the “lump sum amount to the employees”, excluding any stoppage. For an employee who lives on rent to avail of the claim deduction, HRA must be part of his or her monthly income.
However, the income tax act 1961 gives their employees to claim the deduction towards the furnished rent despite their HRA not being part of their salaries. These employees can avail of the deduction concerning the house rent furnished under section 80GG, which is similar to section 134 of the new Income Tax Act. Self-employed people will also be part of the same.
Circumstances
To avail of the deduction under section 134, you must not obtain HRA during any section of the FY. Tarun Kumar, a Delhi-based chartered accountant, stated that “The taxpayer claiming exemption of HRA can’t claim a deduction for rent paid under section 134.”
Under section 134, the individual availing the deduction must not own any premises in the city of residence. Moreover, there must be no residence in the name of the wife, minor child, or Hindu Undivided Family (HUF) of which the office is situated or the business gets executed. So if you have a family house in the city in which you are working, then you should not be able to enjoy the claim.
“Hegde commented that the deduction is allowed to a person who owns a house in any other city different from his occupation, but it shouldn’t be self-occupied or left empty. It should be a let-out property, said Prakash Hegde, a Bengaluru-based chartered accountant. This restriction is limited to the assessees only. The family members can own a property in another city,”
The assessee needs to furnish Form 31; only then shall they be enabled to avail of this kind of deduction. The same is the declaration furnished by the person that the conditions of the section shall be met. The assessee who has not chosen the other option or the latest tax regime, then he will not be able to avail of the deduction.
Method to Compute
With the help of the formula, the deduction is to be computed. The amount of deduction under this section will be the lower of the following:-
- The rent paid in excess of 10% of total income,
- 25% of the total income,
- a maximum of ₹5,000 per month
It is interpreted that Rs 60k is the highest deduction which is permitted in the year. The total income for the subject of calculation needs to acknowledge the post to claim all the deductions from the overall income of the assessee.
Read Also: How to Claim HRA While Filing Your ITR?
For instance, if the total income of the individual is Rs 15 lakh for a year and he is claiming deductions for Rs 2 lakh under several other sections, which consist of 80C, then Rs 13 lakh will be acknowledged as the cumulative income posted in context to him. So, if he is paying rent of Rs 20,000 per month ( ₹240,000 annual rent), then he will be able to avail of any of the three mentioned options.
- a) ₹110,000 (2,40,000 minus 10% of 13,00,000)
- b) ₹60,000,
- c) ₹325,000.
Hence, the most inexpensive amount is Rs 60,000, which he shall be able to avail under Section 134.
Is Rent receipt is must for DDOs, to consider the deductions in salary itself. ? Instead of Receipt , the Agreement, NEFT transfer to the owner’s Bank account and Self certification by the employee is not enough ?
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