Salaried individuals can avail of house rent allowance (HRA) exemption under Section 10(13A). Self-employed professionals cannot be considered for HRA exemption, but they can claim home rent expenses under Section 80GG Max. Rs. 60,000/- P.A. ]
Effective the current financial year, those claiming HRA need to submit landlord’s PAN details if the rent is above Rs15,000 per month or above 1 Lakh P.A..
The actual HRA for tax exemption is lower of the following three numbers:
a) The actual HRA your employer provides you in the salary;
b) 50% of the basic salary when you reside in a metro or 40% for non-metro location; and
c) actual rent you pay minus 10% of basic salary.
For example, assume your basic salary is Rs46,000 per month and the actual HRA offered by the company is Rs26,000.
You rent an apartment in Mumbai for Rs25,000 per month.
Residence in Mumbai will make you eligible for a 50% of the basic pay for HRA exemption. These values are considered to find out HRA tax exemption:
a) Actual HRA received, i.e., Rs26,000;
b) 50% of the basic salary, i.e., Rs23,000; and
c) excess of rent paid over 10% of basic salary, i.e., Rs25,000 – Rs4,600 = Rs20,400. Your HRA exemption is lower of the three (Rs20,400).
The taxable HRA amount is Rs26,000 minus Rs20,400 = Rs5,600.
Tax exemption on home rent for self-employed under Section 80GG is limited Max Rs.60,000/- as per Budget 2016. It is lower of three values:
a) Actual rent minus 10% of gross professional fees;
b) Rs 60,000 per annum; and
c) 25% of gross professional fees. If the self-employed is paying office rent, that can be shown as expense. If not, home office may be shown if a specific home area is used exclusively for office purposes.