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If you don’t get HRA

What if you don’t get HRA in your salary from your employer? Well, even if you don’t get such allowance, Income Tax Act has still got you covered. There is less known provision under the Act which allows employed individuals who do not get HRA to claim tax benefit. Section 80GG of the Income Tax Act, 1961 has provisions for such individuals to claim the tax deduction if the house to rent for their accommodation. To claim benefits under this section, one must satisfy the following conditions:

· The individual, who is an employee, should not receive HRA or any equivalent allowance from his employer as salary.

· The employee, his wife or his minor child should not have the ownership of the property where he resides.

· If the employee is part of a HUF, he or his family should not own the place of his residence.

· In case the employee owns a place other than his rented place of accommodation then he should not be claiming tax benefit on such property as self-occupied property. Such property would be deemed to be let-out.

Documents Required

· Employee needs to furnish documents like rent agreement and rent receipts.

· If your annual rental payment exceeds Rs. 1 lakh then you also need to furnish PAN details of your landlord.

· To claim deduction under section 80GG, he also needs to file Form 10BA. This form proves that the employee is not claiming the benefit of self-occupied property in any other location or the location where he is employed.

Amount of Deduction Available

Under section 80GG, you can claim least of the following as tax benefit:

· Rs. 60,000 per year (i.e. Rs. 5,000 per month)

· An amount equal to the total rent paid minus 10% of the total income

· 25% of adjusted total income of employee

So, the least of the above-mentioned amount is available as tax deduction irrespective of whether the house is furnished or semi-furnished.

Income Tax deduction under section 80GG is a less known and less claimed deduction. The main reason behind this is that most of the employers give HRA as part of the salary to their employees.

We can understand its calculation with the help of an example. Let’s assume that Mr. Arjun gets an annual salary of Rs. 3,00,000 after all deductions out of which he pays an annual rent of Rs. 1,50,000. In this case, the tax deduction allowed to him would be least of the following:-

· Rs. 5,000 per month i.e. Rs. 60,000 per annum

· Rent paid i.e. Rs. 1,50,000 minus 10% of total income i.e. Rs. 30,000 = Rs. 1,20,000

· 25% of total income i.e. Rs. 75,000

The least of the above can be claimed by him as a tax deduction. So, Rs. 60,000 would be allowed as a deduction under section 80GG for the complete Financial Year. Remember that filing Form 10BA is also needed to avail this deduction.

Here is a sample format of Form 10BA for your reference in case you want to claim this deduction.

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A majority of us are aware of the Sec.80c options. But are you aware of the Tax Savings options other than Sec.80C for FY 2017-18?

Download Automated All in One TDS on Salary for Govt & Non-Govt Employees for F.Y.2017-18 & Ass year 2018-19 [ This Excel Based Software can prepare at a time Individual Tax Computed Sheet + Individual Salary Structure for Govt & Non-Govt Employees Salary Pattern + Individual Salary Sheet + Automated Arrears Relief Calculator U/s 89(1) with Form 10E w.e.f. 2000-01 to F.Y.2017-18 + Automated H.R.A. Exemption Calculation + Automated Form 16 Part A&B and Form 16 Part B for F.Y.2017-418, with all amended Income Tax Slab and all amended Tax Section as per the Finance Budget 2017]

Deductor's Details

Salary Structure for Govt & Non-Govt Employees

Tax Computed Sheet

Automated Form 16 Part A&B

Automated Form 16 Part B

Automated Arrears Relief Calculator with Form 10E

Tax Savings options other than Sec.80C for FY 2017-18-Allowances

1. Medical Allowance-This is the allowance provided to the employee to meet the treatment cost to him or his family. The maximum limit per year is Rs.15,000. Anything more than that will be taxable income to the employee.

2. Leave Travel Allowance-The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is 2014 to 2017. You can carry forward your unclaimed LTA to the next year. You can request your employer to not deduct tax on it and allow you to claim it next year.

3. Entertainment Allowances-You may be getting this allowance. However, the exemption is available only for Government employees. The amount of exemption is least of the following.

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or other perquisites)

c) Actual entertainment allowance received

4. House Rent Allowance (HRA)-This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.

a) Actual HRA Received

b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)

c) Rent paid minus 10% of salary

(Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission)

Note: -HRA will be fully taxable if an employee who is living in his own house or if he does not pay any rent. Also, it is mandatory for the employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1,00,000.

5. Children Education Allowance-If your employer providing this allowance, then you can take exemption up to Rs.100 per month per child (maximum of up to 2 children). Therefore, monthly you can save Rs.200 from this allowance. The exemption may seem so low. But why to pay the tax?

6. Hostel Expenditure Allowance-If your employer providing this allowance, then you can take exemption Up to Rs. 300 per month per child up to a maximum of 2 children is exempt. Therefore, you can save around maximum of Rs.600 from this allowance.

7. Transport Allowance-This allowance is provided to you to meet expenditure on commuting between place of residence and place of duty. The extent of exemption is Rs.1,600 per month. For blind and handicapped employees is Rs.3,200 per month.

8. Conveyance Allowance-This is the different allowance than transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing of his official duties. There is no limit for this. If such conveyance allowance is Rs.5,000 a month, then the whole allowance is exempt. Hence, you may this may be exempt to the extent of expenditure incurred for official purposes.

9. Any Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.

10. Allowance to meet the cost of travel on tour or on transfer-Here also no limit. The employee can claim exempt to the extent of expenditure incurred for official purposes.

11. Daily Allowance-If you are not placed in normal duty place, then your employer may provide you such allowance. The employee can claim exempt to the extent of expenditure incurred for official purposes.

These are the major allowances, which can be utilized to save tax on salary income. There are few other allowances also to claim the exemption. But many of such allowances are not so famous. Hence, I left them to list.

Tax Savings options other than Sec.80C for FY 2017-18

Above we discussed few allowances, which you can use wisely to save tax. Now let us move on and discuss more the alternatives to Tax Savings options other than Sec.80C for FY 2017-18.

Note-Effective from FY 2017-18, the limit under Sec.24B for both self-occupied and let out the property was Rs.2,00,000. Earlier there was no such limit for let out properties.

1. Sec.80CCC

Deduction under Sec.80CCC is available only for individuals. Contribution to an annuity plan of the LIC of India or any other insurer for receiving the pension. Do remember that the amount should be paid or deposited out of income chargeable to tax.

The maximum amount deductible under Sec.80CCC is Rs.1.5 lakh. Do remember that this is also the part of combined limit of Rs.1.5 lakh available under Sec.80C, Sec.80CCC, and Sec.80CCD(1).

2. Sec.80CCD

This is all about your investment in NPS. I explained the same in my earlier post “NPS Tax Benefits – Sec. 80CCD(1), 80CCD(2) and 80CCD(1B)“. But I will recap the same here as below.

NPS Tax Benefits under Sec.80CCD (1)

The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
An individual’s maximum 20% of annual income (Earlier it was 10% but after Budget 2017, it increased to 20%) or an employees (10% of Basic+DA) contribution will be eligible for deduction.
As I said above, this section will form the part of Sec.80C limit.

NPS Tax Benefits under Sec.80CCD (2)

There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions. 1) Amount contributed by an employer, 2) 10% of Basic+DA and 3) Gross Total Income.
This is additional deduction which will not form the part of Sec.80C limit.
The deduction under this section will not be eligible for self-employed.

NPS Tax Benefits under Sec.80CCD (1B)

This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction and was introduced in the Badger 2015
Introduced in Budget 2015. One can avail the benefit of this Sect.80CCD (1B) from FY 2015-16.
Both self-employed and employees are eligible for availing this deduction.
This is over and above Sec.80CCD (1).

Note-Under Sec.80CCD(1), now the limit for an individual’s limit is increased to maximum 20% of annual income (Earlier it was 10% but after Budget 2017, it increased to 20%) or an employees (10% of Basic + DA) contribution will be eligible for deduction.

3. Sec.80D

Deduction under this section is available if you satisfy the following conditions.

The taxpayer should be an individual (resident, NRI or Foreign Citizen) or HUF.
Payment should be made out of income chargeable to tax.
Payment should be in NON-CASH mode (for preventive health check up, you can pay either through cash or non-cash mode).

4. Sec.80DD

A resident individual or HUF is allowed to claim the deduction under Sec.80DD. You can claim the deduction if you incurred an expenditure for medical treatment, training, and rehabilitation of dependent relative (being a person with a disability).

A deduction can also be claimed if an individual or HUF deposited or paid for any approved scheme of LIC (or any other insurance) or UTI for the maintenance of such dependent relative.

Here, dependent means spouse, children, parents, brothers, and sisters, who are wholly and mainly dependent upon the individual.

You can claim a fixed deduction of Rs.75,000 under this section. A higher deduction of Rs.1,35,000 is available if such dependent relative is suffering from severe disability.

5. Sec.80DDB

An Individual’s of HUFs expenses actually paid for medical treatment of specified diseases and ailments subject to certain conditions can be claimed under this section.

The maximum deduction is Rs. 40,000 (Rs. 60,000 where expenditure is incurred for a senior citizen and Rs. 80,000 in case of very senior citizen[w.e.f assessment year 2016-17]).

With effect from the assessment year 2016-17, the taxpayer shall be required to obtain a prescription from a specialist doctor (not necessarily from a doctor working in a Government hospital) for availing this deduction.

You can claim the deduction for the medical treatment of self, spouse, children, parents brothers, and sisters of the individual.

The ailments covered under this section are as below.

6. Neurological Diseases where the disability level has been certified to be of 40% and above;

(a) Dementia

(b) Dystonia Musculorum Deformans

(d) Ataxia

(e) Chorea

(f) Hemiballismus

(g) Aphasia

(h) Parkinson’s Disease

(i) Malignant Cancers

(j) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS);

(k) Chronic Renal Failure

(l) Hematological disorders

a) Hemophilia

b) Thalassaemia

7. Sec.80E

An individual can claim deduction under Sec.80E. If the loan is taken by an individual for any study in India or outside India, then they can claim the deduction. The interesting part of the loan on such education loan can be claimed for deduction for pursuing individual’s own education or for the education of his relatives (Spouse, children or any student for whom the individual is legal guardian).

The entire interest is deductible in the year in which the individual starts to pay interest on the loan and subsequent 7 years or until interest is paid in full (i.e for total 8 years). But do remember that interest should be paid out of the income of chargeable to tax.

8. Sec.80EE

First time Home Buyers can claim an additional Tax deduction of up to Rs.50,000 on home loan interest payments under this section. Below are the few conditions for this.

He must be an individual (Resident or Non-Resident).
The loan must be taken for the acquisition of the property.
The loan should be sanctioned in FY FY 2016-17.
Loan amount should not exceed Rs. 35 Lakh.
The value of the house should not be more than Rs 50 Lakh.
The home buyer should not have any other existing residential house during the sanction of loan.

Do remember that if you claimed the interest under this section, then the same can’t be claimed under other sections for deductions.

9. Sec.80G

Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc can be claimed as a deduction under this section. This deduction can only be claimed when the contribution made by cheque or draft or in cash. In-kind contributions like food material, clothes, medicines etc. do not qualify for deduction under this section.

The donations made to any Political party can be claimed under section 80GGC.

From FY 2017-18, the limit of deduction under section 80G / 80GGC for donations made in cash is reduced from current Rs 10,000 to Rs 2,000 only.

10. Sec.80GG

I have written a complete post on this section. Refer “Section 80GG Deduction-Get Tax Benefit on rent paid if not getting HRA !!!“. I will give you the brief about this section as below.

This section only applies to those who have not availed HRA in their salary or not claiming the deduction on their rent in any of the other sections of income tax. Below are a few conditions to avail the deduction under this section.

This section is only applicable to Individual or HUF.
Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.
Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business.
If Tax Payer owns a house at a place other than the place noted above, then the concession in respect of self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].
Tax Payer has to file a declaration in Form No.10BA regarding the expenditure incurred by him towards the payment of rent.

How much amount of deduction one can avail under Sec, 80GG?

If the above five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.

Rs.5, 000 per month;
25% of total income of taxpayer for the year; or
Rent Paid less 10% of total income (Rent Paid-10% of Total Income).

11. Sec.80TTA

A deduction of up to Rs.10,000 can be claimed by an individual or HUB in respect of any income by the way of interest on deposits (not on FDs) in a savings account with a bank, co-operative society or post office.

12. Sec.80U

To claim tax benefits under Sec.80U, the taxpayer should be an individual and resident of India. If he is suffering from 40% or more than 40% of any disability, then he can claim a tax deduction.

You can claim the fixed deduction of Rs.75,000. a higher deduction of Rs.1,25,000 is allowed in respect of a person with a severe disability (i.e. having a disability of 80% or above).

13. Sec.24 (B)

The interesting part of your home loan EMI will be claimed under this section. The maximum limit for the self-occupied and let out property is Rs.2,00,000 per year. For let-out property, earlier the entire interest payment of home loan can be claimed for deduction. However, from FY 2017-18 the limit of Rs.2,00,000 was also capped for let out property.

14. Rebate under Sec.87A

The tax rebate of Rs.2,500/- for individuals with income of up to Rs 3.5 Lakh as per Finance Budget 2017-18.

To avail this benefit, there are certain conditions and they are as below.

The taxpayer must be a resident individual.
Your Total Income (Fewer Deductions from 80C to 80U) is equal to or less than Rs.3,50,000.
The rebate is the 100% of income tax on such income or Rs.2,500/- (whichever is less).

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Sunday 4 November 2018

A tax-payer who has taken benefit under Section 80TTB cannot take tax benefit under Section 80TTA, because benefits under Section 80TTB and Section 80TTA are exclusive.

Thursday 11 October 2018