Skip to main content

TAX PLANNING: The tax benefits of living in rented house

 

House rent allowance is one of the most important components of one's salary, and gets taxed if not claimed for


   HOUSE rent allowance, or HRA, is a major component of your salary. This is given by an employer to an employee to meet the cost of renting a home. As a salaried employee you can claim a tax exemption on such an amount. But there are certain conditions that you need to understand to claim such exemptions.

How is the exemption on HRA calculated?

The tax exemption on HRA is computed as the minimum of following three conditions:

i)                    Actual HRA as per you pay slip;

ii)                  40%/ 50% of your basic salary;

iii)                 The rent amount minus 10% of the salary


   If you stay in a metro —Mumbai, Kolkata, Delhi or Chennai — your HRA would be 50% of your salary. In other cities/towns, it would be 40% of salary. For example, if your salary is Rs 40,000 and you live in Mumbai, HRA would be Rs 20,000 (50% of the salary). Let's assume that you a pay a rent of Rs 15,000. The amount of rent paid minus 10% of the salary is Rs 6,000. The least of these is Rs 6,000, which would be taken as the HRA exemption. Hence the balance (i.e. rent minus HRA exemption) Rs 9,000 will be taxed.

When can you claim exemption on HRA?

You can claim exemption on rent given to parents. For example, you live with your parents and pay them rent. This would technically make your parents the landlords. In such an case, one of your parents should declare the rent paid by you in his/her personal income tax return to prevent litigation in future. However, you cannot claim exemption on rent paid to your spouse. Tax experts say that the relationship between a husband and wife is not commercial in nature and they are supposed to stay together.


   You should provide your employer with accurate rent information so that the company can credit you with the eligible amount of relief before deducting tax at source. Another alternative is that you can also claim such exemption when you file the tax return and seek a refund.


   If you receive HRA for the period during which you were not occupying a rental accommodation, then you can't claim any tax exemption. In all cases it is advisable for you to maintain rent receipts as they are the only proof for rent payments.

Is your landlord an NRI?

According to Section 195, all Indian income of an NRI is subject to TDS. This rule applies to rent too. Any resident Indian is subjected to TDS for rents of over Rs 1.20 lakh per annum. But if you have rented a house from an NRI landlord, the onus is on you to deduct tax at source and pay it to the government. The TDS is a flat 30.9%.

When can you enjoy the twin benefits of home loan and HRA?

If you have taken a home loan to buy a house, say, in Mumbai, but you reside in another city, you can get tax benefits on your housing loan.


   If you have bought a house but stay in a rental accommodation in the same city because your house is not ready for possession, you are entitled to tax benefits on HRA. You can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete for possession, the HRA benefit stops.


   However, if you have bought a house by taking a home loan and stay in a rented accommodation after giving you house on rent, you will be entitled to all the tax benefits mentioned above.

Rent-free accommodation vs HRA

The government had announced the new perquisite rules in December 2009, which are effective retrospectively from April 1, 2009. The value of the perquisite determined in case of furnished accommodation is 10% per annum of the cost of furniture if owned by the employer. In case of hotel accommodation, the perquisite value is to be determined as 24% of the salary paid or payable or actual hotel charges paid by the employer, whichever is lower, for the period during which such accommodation is provided to the employee.


   So under the new rules, should one opt for rent free accommodation or claim exemption on HRA? You should take a decision keeping in view your requirements, salary level, perquisite value and the tax impact.

 


Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now