Would you like to save some tax money? Have you made use of all the tax deductions that the law provides? There may be eligible deductions in many of the expenses that you incur.
e.g. Your house rent could fetch you lower taxes. Even when you make donations, the law of the land entitles you to certain tax privileges. Let us study them here.
Deductions for rent paid
If you have 'HRA' as a component of your salary, section 10 (13A) of the Income Tax Act, 1961 entitles you to the following exemption:
The least of the following amount is exempt from income tax:
- Amount of HRA
- Amount of rent paid less 10 per cent of salary (Salary = Basic + DA) Or
- 50 per cent of your basic salary (for metro cities) or 40 per cent of your basic salary (for non-metro cities)
For example, if your salary comprises of the following and you live in a metro city, let us compute the amount of exemption you can get:
Basic = Rs 20,000 per month.
DA = Rs 7,000 per month.
HRA = Rs. 10,000 per month.
Amount of actual rent paid = Rs 15,000 per month.
The amount of exemption from income tax is the least of the following amounts:
- Amount of HRA = Rs 10,000 per month.
- Rent paid less 10 per cent of salary = (15,000 2700) = Rs 12,300 per month.
- 50 per cent of basic salary = Rs 10,000 per month.
Hence you can claim Rs 10000 per month as exemption. The annual exemption adds to Rs 1,20,000.
What happens in cases where you do not receive HRA from your employer or are self employed but pay rent for your accommodation? Section 80GG of the Income Tax Act allows you the following deduction:
Using the above example, except with the HRA component as Nil, the least of the following amount is exempt from income tax
- Rent / lease amount paid less 10 per cent of your total income = Rs 12,300 per month. or Rs. 14.76 lakh per annum.
- Rs. 2,000 p.m. or Rs. 24000 per annum.
- 25 per cent of your total income = Rs 6750v class="inline-block" id="div_arti_inline_advt">
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