How Self-Employed People Can Claim HRA

Most of us come to a big city in order to find jobs. Since owing a property immediately is quite out of question, we are bound to rent. Since a significant portion of your salary goes towards paying the rent, you must be acutely mindful of the ways in which you could lower this burden.

Now, tt is common knowledge that salaried individuals get house rent allowance as part of their salary package, and are eligible to keep a certain portion of this income tax free by applying for exemption under a specific section of the income tax (I-T) law in India. What is not so commonly known is the fact that working professionals, who don't get HRA as part of their salary can also claim these deductions, albeit under a different section of the I-T law.   Let's find out the difference between the two and understand how to claim tax benefits on the rent you pay.    

Self-employed people can also claim deductions

If you are a salaried employee and have house rent allowance (HRA) as part of the package, and are staying in a rented accommodation, you can claim a tax exemption under Section 10 (13A) of the Income Tax (I-T) Act. The amount of tax exemption is calculated considering the lowest of the three options below:

1. The actual HRA received; or
2. The actual rent paid, minus 10 per cent of your basic pay; or
3. Fifty per cent of the salary if you live in a metro and 40 per cent of your basic salary if you stay in a non-metro

Do note here that self-employed people can claim deductions under Section 80GG of the Act. A salaried person can also claim deductions under this section if they are not getting HRA benefits as part of their salary.

To avail of the benefits under this Section, the taxpayer has to file Form 10BA while filing their income tax return.

These are the details that you need to provide in the form:

*Your name

*Your PAN details

*Your full address

*Residency tenure

*Rent amount

*Mode of payment

*Landlord’s name and address

*PAN number of the landlord (if the annual rent is more than Rs 1 lakh for the assessment year

You will also have to make a declaration that you do not own any other residential accommodation in your, your spouse's or your children's name.

In your case, the lowest of below-mentioned amounts will be considered as the deduction

1. Rs 5,000 a month
2. Twenty-five per cent of total income (income will not include long-term capital gain, short-term capital gain, income from dividends, royalty, etc).
3. Actual rent minus 10 per cent of income. Here, too, the income would not include long-term capital gain, short-term capital gain, income from dividends, royalty, etc.

To claim the deduction, however, certain conditions must be fulfilled.

First, you have to prove you did not receive any HRA against the amount you paid as rent.

Second, you have to prove you do not own a property in this city where you are living in a rented accommodation.

Also note here that if you own a property in a different city for which you are being taxed under the Income-From-House-Property category, you will not be able to claim deductions under Section 80GG.

Also note here that if you have rented an office space as your working space, the rent you pay for the same is not covered under this section.