With the launch of the new portal of the Income Tax Department from today, taxpayers will start looking for a return of the tax deducted in 2020-21. House rent is a major tax saving method, on which the landlord as well as the tenant gets tax exemption. How can both parties take advantage of this?
Only salaried people get this facility
Clear ax CEO Archit Gupta says that if you want income tax exemption on the amount paid as house rent, then the first condition is to be a salaried person. Your salary includes House Rate Allowance (HRA), on which tax exemption is given up to a certain limit under Section 10(13A) of the Income Tax Act.
For this, there should be a rent agreement on a stamp of Rs 100 or 200, signed by the landlord and the tenant. It is important to mention the monthly rent and other expenses in the agreement. While filing the return, the receipt of the monthly rent paid to the landlord and a copy of the agreement will have to be given as a document. Another important thing, it is also necessary to include the HRA part in your salary. Only then will you be able to get tax exemption.
- If you live in your own house, you will not get the benefit of deduction.
- You can claim tax exemption on HRA even if you live in your parents’ house.
- Businessmen or professionals cannot take tax exemption on their house rent.
This is how the exemption will be calculated
A salaried person living on rent in a metropolis gets 50 percent of the basic salary and 40 percent in other cities. You live in Delhi and your basic salary is Rs 40,000 per month, on which the company gives Rs 20,000 as HRA. If your actual rent is Rs 15,000 per month, then you will pay Rs 1.80 lakh in a year. Received Rs 4.80 lakh annually as salary and Rs 2.40 lakh as HRA. Now the amount of tax exemption will be the rent actually paid minus 10 percent of the salary. For example, by deducting Rs 48 thousand from Rs 1.80 lakh, you can claim tax exemption of Rs 1.32 lakh.
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30 percent tax exemption to the landlord on the rent amount
The landlord also gets the benefit of 30 percent standard deduction on the amount received as rent throughout the year and income tax is not levied on this amount. Such taxpayers should calculate their income carefully while filing returns, because the entire amount received as rent throughout the year does not come under the purview of income tax. After deducting the municipal tax paid from this, the remaining amount is considered as the landlord’s income from other sources and the gross rent amount of that year.
Claim for repair or renovation has to be made
The Income Tax Department gives the landlord the benefit of 30 percent standard deduction as expenditure on repair or renovation of the house in the year in which tax exemption is given. To claim this in ITR, the landlord will have to present the bill-voucher of the amount spent on renovation or repair. If a loan has been taken to buy a house, then the tax paid on it can also be claimed in standard deduction. However, this amount should not exceed 30 percent of the gross rent amount in any way.
This is how you will calculate
Suppose in a financial year, Rs 3 lakh is received as house rent. On this, Rs 30 thousand is deducted as municipal tax in a year at the rate of 10 percent, then income tax will be levied only on Rs 2.70 lakh. The landlord can take tax exemption of up to 30 percent of this amount i.e. Rs 81 thousand as standard deduction.
Exemption will be available only in the old tax slab
While filing returns, taxpayers have to remember that the benefit of both tax exemptions will be available only in the old income tax slab. The landlord also gets tax on rent, only a few people know this. Therefore, it becomes necessary to take professional advice while claiming tax exemption.
