House Rent Allowance (HRA) plays a significant role in reducing the tax burden for individuals who do not receive a specific house rent allowance from their employer. Section 80GG of the Income Tax Act provides a tax deduction on the rent paid by individuals, subject to certain conditions. In this article, we will delve into the details of how HRA is calculated under Section 80GG.
Section 80GG Explained
Section 80GG of the Income Tax Act is applicable to individuals who do not receive HRA from their employer but still incur rent expenses. It allows them to claim a deduction for the rent paid, subject to specific conditions. The amount of deduction that can be claimed under this section is the least of the following three amounts:
Rent paid minus 10% of total income.
Rs. 5,000 per month.
25% of total income.
Calculation of House Rent Allowance
To calculate the House Rent Allowance under Section 80GG, let’s consider an example. Suppose Mr. Sharma is a salaried individual with a total annual income of Rs. 8,00,000. He does not receive any HRA from his employer but pays a monthly rent of Rs. 15,000.
Step 1: Calculate 10% of total income
10% of Rs. 8,00,000 = Rs. 80,000
Step 2: Calculate rent paid minus 10% of total income
Rent paid – 10% of total income
Rs. 1,80,000 – Rs. 80,000 = Rs. 1,00,000
Step 3: Calculate 25% of total income
25% of Rs. 8,00,000 = Rs. 2,00,000
Step 4: Determine the least amount
The least amount among the three calculations is Rs. 1,00,000. Therefore, Mr. Sharma can claim a deduction of Rs. 1,00,000 under Section 80GG.
House Rent Allowance (HRA) calculation under Section 80GG provides a tax benefit to individuals who do not receive HRA from their employer but pay rent. By understanding the provisions and conditions outlined in the Income Tax Act, individuals can optimize their tax savings and reduce their overall tax liability.