Save Tax on Home Rent Even Without HRA benefits

HRA or home rent allowance is a common part of every salary received by and employee by his or her employer. Those who live on rent or pay rent for their parents or other family members are not entitled to receive any sort of house rent allowance. The same can be said for those who are self- employed. People who do not work for any other employer but are self-employed, do not receive house rent allowance.

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Those who work for some employer in an institution or organization get this house rent allowance and under the Income Tax Act are allowed to claim tax exemption on this allowance. Thought the entirety of the home rent allowance is not tax-free, but by giving a detailed breakdown of your salary while filing income tax will help you get the HRA exemption.

For those who are not in a normal employer-employee contract for a certain amount of salary, it is difficult to save on tax for home and house rent as there is no house rent allowance. Luckily there are a couple of ways to save up on taxes even without having a house rent allowance.

Tax saving option for those without HRA

For self-employed people and taxpayers who do not receive HRA benefit for payment of rent and accommodations in a residency, there are some clauses in the Income Tax Act that help them. Section 80 GG of the Income Tax Act state that those who are self-employed or are employees without house rent allowance are entitled to claim an exemption up to a maximum of rupees 5000 for every month for an excess of 10% of their total income and is subjected to a maximum of 25% of their total gross income.  Both these deductions can only be claimed under the pretense of the accommodation taken and occupied by the taxpayer. For this to be exempted for the taxpayer, the area of residency must be situated in the same place where the business or profession is being practiced by the taxpayer as the owner or employee. 
So those who are devoid of a house rent allowance can in fact save up on taxes under this clause of the Income Tax Act. This allows all individuals to have the opportunity to save upon taxes whether or not if he or she receives house rent allowances and irrespective of their earning status or professional designation. 

Public Provident Fund (PPF)

Employees who are working for a certain amount of salary have the option to save upon taxes by investing in Employee Provident Funds or EPS. Until 1986, no such benefit was available for those who were not under any employment contract and were self-employed. Since then, those who were self-employed could also enjoy the benefits of saving tax by investing in what we now know was a public provident fund (PPF).

The public provident fund is accessible and open for both salaried and also self-employed personnel. Both these schemes allow individuals to save up on tax up to a maximum limit of 1.5 lakh per year. This is as per Section80 C of the Income Tax Act.  The interest from both these schemes as well as the final maturity amount is completely tax-free. Having an interest rate of 8% per annum on a quarterly basis, PPF is a great way for self-employed individuals to earn a lump sum and save a considerable amount on tax despite not have house rent allowance. Owing to Section 80 c of the Income Tax Act, one can even claim tax benefits if contributions are made to your own account or to the accounts of your child or spouse.

National Pension System (NPS)

Individuals who are employees of the Government or those who are working on projects owned by the government all receive a pension after retirement. This is a big reason why the popularity and demand for government jobs have sky rocketed in the past few years. People who are self-employed and do not have the benefit of house rent allowance do not have the facility or option to have a pension after retirement. 

To even out the scale, a National Pension System or NPS is created which allows self-employed individuals the opportunity to store up funds and from there get a pension after they retire. By contributing to the national pension system, the self-employee can claim a tax benefit of up to 20% of their total gross income. Under Section 80 CCD(1), with an overall limit of 1.5 lakh per year under Section 80 CCE taxpayer can have an additional benefit of 50,000 if the pre existing limit of 1.5 lakh is exhausted without having NPS contributions.

Therefore, if one does not have any other eligible tax deduction facility of an item like a house allowance rent, he or she can contribute up to 2 lakh to a national pension system and receive a pension after retirement from the NPS.

Section 80 (GG)

There are a bevy of people who do not get paid a house rent allowance even thought they live on rent in a metropolis. For such people, Section 80 (GG) of the Income Tax Act comes into play. Under this section of the Income Tax Act, any individual who is paying rent for accommodation purposes can save up on tax provided he or she is not paid house rent allowance of any sort by a third party as a part of his or her salary. This can be done by presenting From 10 B.

To be exempted from house rent tax without being paid any house rent allowance under Section 80 (GG), some situations which must be prevalent and applicable to you. If any of the following situations applies to you, then you are entitled to have tax benefits on house rent even without having any house rent allowance.

The first scenario is that the rent that is paid by you for accommodation purposes must be at least 10% higher than the total amount of income that you receive. If this is your financial situation, then you are eligible to have a tax benefit on house rent even without having a house rent allowance.

The second possibility is that 25 % of your total income is spent on home accommodation and rent. The total income is calculated by subtracting the long-term capital gains, all short-term capital where the STT or Securities Transition Tax has all been paid and all deductions under Section 80 C to Section 80 U of the Income Tax Act excluding Section 80 GG from the gross income that you have earned.  

The final situation where a self-employed individuals entitled to tax benefits on house rent is when his or her rent each month is five thousand rupees per month.
In any of these situations, a self-employed person is able to reap the benefits of saving tax on home rent even he or she is not given any house rent allowance to begin with.

For claiming the benefits of a tax deduction, a person without house rent allowance must ensure that some certain conditions are met. Self-employees while claiming tax deductions must remember and ensure that he or she must not own a y kind of residency accommodation of their own. This is also applicable to their spouse or child and applies to all self-employed people who are a member of the Hindu Undivided Family or HUF. If the individual if found to have owned any kind of accommodation or residential property and is earning rent from it, then he or she is not allowed to have any sort of tax deduction on his or her own house rent whether or not he or she receives house rent allowance.

If a taxpayer who does not receive house rent allowance can abide by the above mentions methods and procedure, then he or she can easily claim deductions and save tax on home rent. Apart from Section 80 (GG), people can also avail tax benefits for house rent by investing in provident funds and other investment schemes that provide tax exemption under Section 80 C of the Income Tax Act.

The Income Tax Act allows individuals without hose rent allowances to enjoy tax deductions and exemption so that there is financial equality and so that every citizen of the country who are in a business venture or are practicing a self-stared profess to have monetary flexibility.  There are any Sections in the Income Tax Act that allows people to take advantage and save up as much as they can on tax. Those without house rent allowance can find other numerous ways by which the can save up on house rent and avail tax deductions on the same.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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