How To Claim HRA Tax Exemption When You Are A Self-Employed

The Buyt Desk

HRA, House Rent Allowance, is the salary component that an employer pays their employees toward the rent they incur while living in the city of employment. HRA is eligible for tax exemption under article 10(13A). However, there are two basic requirements that you must fulfill to claim it-

You must be paying rent and able to give proof of rent
You are getting HRA from your employer

But what if you do not receive HRA or you are self-employed? You can still claim rent exemption using section 80GG of the Income Tax Act. This section allows any individual to get tax exemption who does not receive HRA from the employer.

There are a few conditions as well –

It can be Rs 5000 per month, which turns out to be 60,000 per annum.
It can be 25% of the total gross income.
Actual rent paid minus 10% of the total gross income.

Scenario: – Mrs Iyer is a self-employed who lives in Chennai. She makes an annual gross income of Rs 6,00,000 and pays rent of 20,000 per month. The tax exemption she can claim under section 80GG is the lowest of the three.

Rs 5,000 per month, i.e. Rs 60,000 per year.
25% of total gross income. In this case, it is 25% x Rs 6,00,000 = Rs 1,50,000.
Actual rent paid minus 10% of the total gross income. This is Rs 2,40,000- Rs60,000 = Rs 1,80,000

So, the amount which Mrs Iyer can claim the deduction under section 80GG is Rs. 60,000 per annum.

Points to Consider When Claiming HRA Tax Deduction Under Section 80GG.

Section 80GG option is available to only those individuals who do not receive HRA but lives on rent.
Hindu undivided family living on rent is also eligible to claim under this section.
The maximum allowed deduction in this category is Rs 60,000 per annum.
Anyone availing benefit under section 10(13A) become ineligible for 80GG.
Similar to section 10(13A), a person having a house in his name/spouse or children in the city where he is employed can’t claim tax deduction under section 80GG.
An individual who lives on rent despite having a home in the same city in his name/spouse/children can claim a tax deduction under section 80GG by giving a valid declaration. Additionally, he has to submit form 10-BA with the clarification that he meets all conditions for the tax deduction.