In India, the tax benefits on rents paid differ, it totally depends on whether you are a salaried person who gets HRA from the employer, or if you pay rent but do not get HRA. This HRA is a part of your salary. To meet the high cost of living employers pay house rent allowance to their staffs.
India’s income tax laws also help individual who does not own a house and live on rent, without getting HRA. Although, the tax benefit varies, in each case.
Like basic salary, HRA is not completely taxable. On certain conditions, a portion of HRA is excluded under Section 10 (13A) of the Income-tax Act, 1961.
The HRA amount is deducted from the total income before it reaches a taxable income. But you must keep in mind that the HRA you got is completely taxable if an employee is staying in his own house or if he is not paying any rent.
Who can avail HRA?
The tax benefit is convenient only to a salaried people who have the HRA( House Rent Allowance) as the portion of his salary structure and is staying in a rented house. Self-employed persons cannot get the deduction.
To avail HRA exemptions facility on has to submit the rent receipts or the rent agreement with the house owner.
It is compulsory for the staffs to report the Pan Card of the 'landlord' to the employer if the rent paid is more than Rs 1,00,000 yearly.
There are some special scenarios in which you can claim HRA tax benefit, such as:
1. Paying rent to family members
The rented house cannot be your own house. If you are staying with your parents and paying them to rent then you can claim that for tax deductions as HRA. But, you cannot give rent to your spouse as in this relationship you are supposed to live under the same roof.
2. Own a house, but staying in another city
You can get the benefit of the deduction for the home loan against 'interest paid' and 'main repayment' and HRA if your home is rented out or you work in another city.
Rent paid by people who are not in receipt of HRA
Section 80GG of the Income Tax Act also allows the tax deduction on the rent paying by an individual. This can be claimed by the self-employed person, as well as staffs who do not get any HRA from their employers. The benefit is allowed as a tax deduction from one’s entire income. However, the deduction is restricted to 25% of the total income or extra of rent in reality paid over 10% of the whole income. Furthermore, the maximum deduction that can be claimed in a year is Rs 60,000 and Rs 5,000 per month.