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

Thu, 03 Nov 2022 03:23:51 +0000

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.

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Tax Relief for COVID 19 Treatment

Mon, 12 Jul 2021 08:12:55 +0000

The Buyt Desk

The Central Board of Direct Taxes (CBDT) has rolled out a number of measures to lessen the income tax burden for those who had an up and close battle with COVID19. According to the Ministry of Finance, if you have received financial assistance from your employer or friends and relatives for the treatment of COVID19 then your income tax on this money will be fully tax exempted. Any payment received as compensation in case of the death of an employee due to COVID 19 would also be entitled to income tax relief.

Any amount spent by the employer for the treatment of COVID19 would be free from tax. Not just the beneficiary and his/her family but also the person/company who pays for this will not face liability.

Tax Exemption Limit on Treatment Cost

Amid the second wave of COVID 19, several taxpayers received monetary help from their employers, friends or relatives. Income Tax treats receiving of any fund other than from your close relative as your income. If a friend or a relative who is not specified in the Income Tax Act’s Section 56 helps you with money above Rs 50,000 the receiver is liable to pay tax on it. This money will be added to his/her income and taxed as per the eligible income tax slab. This money is treated as income from other sources. In case of the employer helping you with money, it will be taxed as per your perquisite

The CBDT ‘s statement said “Many taxpayers have received financial help from their employers and well-wishers for meeting their expenses incurred for treatment of Covid-19. In order to ensure that no income tax liability arises on this account, it has been decided to provide an income-tax exemption to the amount received by a taxpayer for medical treatment from an employer or from any person for treatment of Covid-19 during FY 2019-20 and subsequent years.”

Tax exemption On Ex-gratia

Income tax will be exempted on monetary compensation received by the family on the death of a dear one. If the employer makes the ex-gratia payment the full amount will be tax-free. If such payment is received from a friend or a well wisher then an amount of Rs 10 lakhs will only be exempted.

CBDT’s official statement – “Unfortunately, certain taxpayers have lost their lives due to Covid-19. Employers and well-wishers of such taxpayers had extended financial assistance to their family members so that they could cope with the difficulties arising due to the sudden loss of the earning member of their family. In order to provide relief to the family members of such taxpayer, it has been decided to provide income-tax exemption to ex-gratia payment received by family members of a person from the employer of such person or from other person on the death of the person on account of Covid-19 during FY 2019-20 and subsequent years. The exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to Rs 10 lakh in aggregate for the amount received from any other persons.”

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