Exemption under Section 10(13A) in respect of House Rent Allowance (HRA) and Deduction under S.80GG in respect of rent paid

Before understanding what HRA means, you should first understand that an employee’s salary is basically divided into several components. For example, some of the components might be, basic salary, Transport allowance, medical allowance, dearness allowance, special allowance etc. House rent allowance or HRA is one such component.

Coming to the income tax context, one has to understand that not all allowances are taxable, some are fully exempt and some are partially exempt from income tax in the hands of the employee. HRA belongs to the latter which is partially exempt.

Governing Law: Section 10(13A) of the Income Tax Act, 1961

The Assessee claiming the HRA deduction,

• Must be a salaried individual.
• Must have a HRA component in his salary structure. (i.e. If no HRA is received, there will not be anything to exempt in the first place)
• Must reside in a rented accommodation.

The Assessee claiming the HRA deduction,

• Rent receipts.
• Rent agreement between the landlord and the tenant.
• PAN of the house/land owner (if rent paid is more than 1 lakh/year).

The LEAST of the following amounts will be exempted.

• Actual HRA received by the employee.
• 50% of the salary in case you live in a metro, and 40% if you live in a non-metro city.
• Actual rent paid less 10% of salary.

Example:

Janani is living in Chennai and is working in Microsoft. She is receiving a gross salary of Rs. 12,00,000 per annum, she is paying Rs. 10,500 as monthly rent for her apartment in Chennai, the breakup of her salary is as follows,

• Basic component : Rs. 4,80,000
• Dearness Allowance : Rs. 1,20,000
• HRA allowance : Rs. 2,40,000

• Transport allowance : Rs. 1,20,000
• Special allowance : Rs. 2,40,000
• Total monthly gross : Rs. 12,00,000

Particulars	Amount	Amount
Total HRA ReceivedM		2,40,000
Less: HRA deduction under section 10(13A): Lower of the following a. Actual HRA Received b. 50% of basic salary c. Rent paid – 10% of salary	2,40,000 (5,00,000) * 50% = 2,50,000 1,26,000 – 10% * (5,00,000) = 76,000	(76,000)
Taxable HRA		1,64,000

So, now we know what HRA is and how the amount of deduction under section 10(13A) is calculated.

Having seen this, do self-employed individuals or employees who do not have HRA as a part of their salary structure (i.e. who do not receive any HRA), but live in a rental accommodation paying rent have a chance at claiming HRA deduction?

Technically no, deduction under section 10(13A) can only be claimed by those assesses who receive HRA as part of their salary structure. As a relief to these class of assesses, the government introduced deduction under section 80GG.

People who are self-employed or employees who do not receive any HRA but reside in a rental accommodation can make use of the deduction under section 80GG of chapter VI A of the Income Tax Act, 1961 as a relief.

Governing Law: Section 80GG of the Income Tax Act, 1961

• The assessee must be either self-employed or salaried
• The assessee must not be getting any tax benefits under HRA
• The assessee should not own any residential house at the place of employment / business.
• Deduction under section 80GG cannot be claimed, if the assessee, or his spouse or minor child or HUF in which he is member owns any property which is being disclosed as self-occupied for claiming any benefits.
• The assessee should file a declaration in Form 10BA.

The LEAST of the following amounts is eligible for deduction

• Rs. 5,000 per month/Rs. 60,000 per year.
• Annual rent minus 10% of adjusted total income
• 25% of the total adjusted annual income.

Note:

Adjusted Total Income is calculated as follows,

Gross total income : XXX
Less: Long term capital gain :(XXX)
Less: Short term capital gain :(XXX)
Less: All other deductions under chapter VI-A except 80GG :(XXX)
Adjusted Total Income : XXX

Both Section 80 GG and Section 10 (13A) provide tax relief to people residing in rental accommodations paying monthly/annual rent to land owners.

HRA Exemption	Deduction u/s 80GG
Applicable to salaried assessees.	Applicable to salaried and self-employed assessees
There is no maximum ceiling amount to the amount of deduction that can be claimed.	Maximum amount that can be claimed as deduction is Rs. 60,000 annually.
PAN of land lord is required if the amount of rent paid exceed Rs. 1,00,000 per year.	No such requirement.
Quantum of deduction: Least of the following is exempt,  Actual HRA received by the employee. 50% of the salary in case you live in a metro, and 40% if you live in a non-metro city. Actual rent paid less 10% of salary.	Quantum of deduction: Least of the following is exempt,  Rs. 5,000 per month/Rs. 60,000 per year. Annual rent minus 10% of adjusted total income 25% of the total adjusted annual income.

Note:

• A new tax regime was introduced under section 115BAC for the benefit of individual assessees.
• Section 115BAC was introduced to provide relief by way of increased slabs and reduced rates of income tax.
• However, any individual assessee who wants to pay tax as per the new regime should have in mind that that none of the tax deductions that was applicable as per old regime will apply during computation of income under section 115BAC (new regime), that includes HRA and Section 80GG deduction also.
• Deduction under section 10(13A) and deduction under section 80GG will not apply if the assessee opts to pay tax under the new taxation regime.

1. I am an employee, HRA is a part of my salary structure, the Employer failed to avail the HRA deduction. Due to his mistake, there is no HRA deduction in my Form 16, can I do something to rectify this mistake?
   • If you have satisfied all the conditions given in section 10(13A), you are eligible for the HRA exemption
   • Even if the employer has failed to avail the deduction, you can avail the same while filing your Income tax return for that year.
2. I own a house, but that house is used by my parents, I live separately with my family in a rental accommodation, can I avail HRA deduction?
   • Yes, you can avail the HRA deduction, provided you satisfy all other conditions contained in the section 10(13A).
3. Can I claim both HRA deduction and deduction under section 80GG for the same AY?
   • No, HRA deduction and deduction under section 80GG cannot be claimed simultaneously, the assessee can only claim deduction under any one of the mentioned sections in respect of rent paid.