In a relief to individual taxpayers, the finance minister on Monday announced a tax relief of Rs 60,000 on house rent, up from the existing deduction of Rs 24,000. This tax deduction has been provided under section 80 GG of the Income Tax Act.
“I propose to increase the limit of deduction of rent paid under 80 GG from Rs 24,000 per annum to Rs 60,000 to provide relief to those who live in rented houses,” Arun Jaitley said while presenting the Budget for 2016-17.
This impacts those who are not salaried employees, or do not receive house rent allowance (HRA) as part of their salary, which means this relief is aimed at a very small group of taxpayers in India. And only 4% of India’s billion population pay taxes. Thus, consultants or self employed people such as teachers who give coaching classes, adhoc employees would be affected by this proposed change.
Most salaried taxpayers book relief for HRA under section 10(13A) of the Income Tax Act, rent allowance is generally a part of one’s salary. Also, Rs 60,000 annually would translate to a monthly rent of just Rs 5,000 — a deduction that is unlikely to bring cheer even to small taxpayers.
However, this tax deduction comes with its own set of conditions.
“It’s a benefit that is applicable only on fulfilling certain provisions: rent paid over 10% of total income, 25% of total income and Rs 60,000, whichever is the lowest is the effective tax deduction” explains Vineet Agarwal, partner tax at KPMG.
The move say real estate analysts will boost home rents.
“Rental housing has been provided an impetus with an increase in the HRA deductions. Those not receiving any HRA can now avail a standard deduction of Rs 24,000; while for those availing it, the limit has been raised to Rs 60,000 per annum for rented accommodation,” CBRE South Asia chairman and managing director Anshuman Magazine said.