Form 12 BB – Statement showing particulars of claims by an employee for deduction of tax

All employees are required to submit an investment declaration for the proposed investments for each financial year to his employer at beginning of the financial year. Employers will then compute the proportionate income tax or TDS at the beginning of the financial year (FY) and accordingly withheld on a monthly basis.

Actual declaration of investments is to be made in Form 12BB along with the investments proofs, which is to be submitted to the employer at the end of the fiscal year.

What is Form 12BB?

Form 12BB is prescribed by the Central Board of Direct Taxes (CBDT). Earlier, there was no specific format for making declaration but from 1st June 2016, the process of declaration has been standardized with introducing Form 12BB.

Form 12BB applies to all salaried individuals. Salaried taxpayers are required to declare the investments made during the financial year and submit the proof of investments usually during January- February months.

The Following deductions can be claimed by Salaried Individuals through Form 12BB:

1. House Rent Allowance (‘HRA’)

In the first section of Form 12BB, you have to fill the details to claim HRA deduction. For which, you need to provide details such as:

a. Rent amount paid to the landowner

b. Name and address of landowner

c. PAN of the landowner if the rent paid during the year exceeds Rs. 1,00,000

d. Attach Rent receipts/Rent Agreement as a proof of evidence.

e. In case, the rent is paid through cash, you have to affix revenue stamp on the receipts.

2. Leave Travel Allowance (LTA)

The Leave Travel Allowance (LTA) is also known as Leave Travel Concession (LTC) which is given by the employers to their employees, which can be utilised for their travel expenses. LTA is an assistance received by the employee from his employer for travelling on leave. Salaried employees are required to submit travel expenses proofs to their employers if they want to claim tax deduction on LTA/LTC.

Leave Travel Allowance can only be claimed through your employer.

Therefore to claim this, expenditure amount with number of documents and proofs should be mentioned in Form 12BB.

3. Interest payable on home loan under Section 24(b)

To claim tax deduction on interest paid for home loan, you need to provide details like interest paid /payable, lender’s name, lender’s PAN in Form 12BB.

Stamp duty, registration fees and brokerage expenses paid towards transfer of the property can be claimed as deduction.

4. All Deductions specified under Chapter VI-A

Few list of deductions available under Section 80 that you can declare and claim in Form 12BB:

Section 80C: Life insurance Premium paid and investments made in ELSS, PPF, NPS, NSC, school tuition fees paid for children, etc
Section 80CCC: Premium towards pension plans
Section 80CCD: Additional contributions made to National Pension Scheme
Section 80D: Premium paid for medical insurance
Section 80E: Interest paid for education loan
Section 80G: Donations made to specified organizations

Therefore, We strongly suggest you to submit all investment proofs along with Form 12BB on time to the employer to claim deductions.

Let’s understand the tax implications or TDS to be deducted by the employer, in case Form 12BB is submitted or vice-versa:

Mr. Peter has a salary chargeable to tax of Rs.6,00,000, House Property Income of Rs. 50,000, Interest from Fixed Deposits of Rs. 8,000 and made investments under Section 80C of Rs.1,50,000. Lets see the TDS to be deducted by the employer, in case Mr. Peter has submitted the Form 12BB along with investment proofs to the employer or if he has made investment declaration in the beginning of financial year but have not submitted Form 12BB in the end of the year:

TDS to be deducted by Employer (If Form 12BB is submitted Amount (Rs) TDS to be deducted by Employer (If Form 12BB is not submitted at the end of FY) Amount (Rs)
Income from Salary chargeable to tax 6,00,000 Income from Salary chargeable to tax 6,00,000
Income from House Property 50,000 Income from House Property 50,000
Income from Other Sources- Fixed Deposit Interest 8,000 Income other Sources- Fixed Deposit Interest 8,000
Gross Total Income 6,58,000 Gross Total Income 6,58,000
Less: Deductions u/s 80 C 1,50,000 Less: Deductions u/s 80 C -
Taxable Income 5,08,000 Taxable Income 6,58,000
Total Tax Liability 14,664* Total Tax Liability 45,864*
*Tax Calculation: Rs.5,08,000- 2,50,000 (Basic Exemption)= Rs. 2,58,000
  • 5% x 2,50,000= Rs.12,500
  • 20% x 8,000 = Rs. 1600
  • Education cess of 4% = Rs.564

Total Tax = Rs.14,664.
  *Tax Calculation: Rs.6,58,000- 2,50,000 (Basic Exemption) = Rs. 4,08,000
  • 5% x 2,50,000= Rs.12,500
  • 20% x 1,58,000 = Rs. 31600
  • Education cess of 4% = Rs.1764

Total Tax = Rs.45,864.
 
TDS to be deducted by Employer for the Financial Year 14,664 TDS to be deducted by Employer for the Financial Year 45,864
TDS to be deducted by Employer per month 1222 p.m TDS to be deducted by Employer per month (considering investment declaration) From April-January. 1222 p.m or 12220 for 10 months
- - TDS to be deducted by employer in last two months (February & March), in case Form 12BB with proofs are not submitted. 33,644

Therefore, we can see Rs. 33,644 TDS will be deducted in the last two months (Feb & March) due to non-submission of Form 12BB to the employer along with investment proofs. This will result in excess TDS deduction of Rs.31,200 (Rs. 45,864 – Rs. 14,664). Thus, if in any case Mr. J.Peter does not submit investment declaration or Form 12BB (along with proofs), He can still claim the deductions at the time of filing ITR and claim the TDS refund (if any).

Where can one see their TDS deductions?

If you have received any income for which, tax has been deducted at source (TDS) (for e.g. by your employer when paying your salary or dividend paying company when paying dividends on equity shares held by you) it should reflect in Form 26AS. You can download your Form-26AS from your e-filing account on incometaxindiaefiling.gov.in. or from TRACES website. Click Here to know the steps you need to follow to download Form 26AS.

Sometimes, the actual amount of TDS deducted and TDS credited in Form 26AS may differ, this might be due to reasons like non-furnishing or non-filing of TDS returns to the Income Tax Department by the employer, linking the tax deducted with an incorrect PAN, etc.

Is it compulsory to submit Form 12BB?

No, it is not compulsory to submit Form 12BB. But in case you have not declared your investments in the beginning of the financial year and excess TDS has been deducted in initial quarters, don’t worry you can still claim the tax deductions while submitting Form 12BB to your employer at the end of financial year (During January- February).

Do I need to submit the Form 12BB to the Income Tax Department?

No, Form 12BB has to be submitted to your employer at the end of financial year and not to Income tax department.

Supporting Documents to claim deductions:

Nature of Claim Type of Document/ Evidence
1. House Rent Allowance (‘HRA’) Rent Receipts/Rent Agreement, PAN of the landlord (if applicable)
2. Leave Travel Allowance (LTA) Travel Bills
3. Home Loan Interest Travel Bills
4. Deductions Under Chapter VI-A:
Section 80C :
Life Insurance Premium (LIC)
National Saving Certificate (NSC)
Public Provident Fund (PPF)
Equity Linked Savings Scheme (ELSS)
School Tuition Fees
LIC Premium Receipts
NSC Investment Receipts
PPF Passbook
ELSS Fund Statement/Purchase Details
School Tuition Fees Receipt
Section 80CCC :
Premium towards pension plans

Receipts of Contribution to Pension funds
Section 80CCD :
Additional contributions made to National Pension Scheme

Receipts of Contribution to Retirement Pension Scheme
Section 80D :
Premium paid for medical insurance

Mediclaim Policy/ Health Insurance Receipts
Section 80E :
Interest paid for education loan

Education Loan Statement/ Receipts
Section 80G:
Donations made to specified organizations

Donation Receipts

Where can I download a Form 12 BB?

Usually a company may provide its employees a Form 12BB. However, if your employer doesn’t provide you one, you may download the Form 12BB in excel here. Fill it up, sign and submit proof of your tax deductible expenses and investments to your employer. 

9 Components of Salary Structure

The term ‘Salary’ signifies any consideration given to employee by his employer. Any income is known as Salary if relationship between Payer and Payee is of Employer & Employee.

Breakup of your Salary

1. Basic Salary – Basic Salary is the minimum salary given by the employer to employee keeping in mind his qualifications, experience and technical skills. Basic salary is always given under grade system. This is a fixed component in your salary portion or CTC package (cost to company).

2. House Rent Allowance (HRA) House Rent Allowance or HRA is a component of the salary portion, which is provided by the employer to his/her employee. Employeed or Salaried Individuals who live in a rented house property can claim full or partial HRA exemption under section 10(13A). However, HRA is fully taxable in the hands of employees if they don’t live in a rented accommodation.

HRA Exemption allowed will be least of the following:

a) Actual HRA Received

b) Actual Rent paid reduced by 10% of Salary

c) 50% of basic salary in case where taxpayer is residing in a metro city.

d) 40% of basic salary in case where taxpayer is residing in a non-metro city.

click form

3. Conveyance AllowanceConveyance allowance is to be given to the salaried individuals for meeting travel expenses from their residence to work/office. From FY 2015-16, the conveyance allowance has been exempted up to Rs.1600 per month or Rs.19,200 per annum u/s 10 of Income Tax Act’1961.

You can claim this exemption only if it is provided by your Employer and not at the time of filing Income Tax Return.

In Budget 2018, Standard deduction of Rs.40,000 has been proposed to replace Transport Allowance of Rs.1600 p.m i.e Rs. 19,200 p.a and reimbursement of miscellaneous medical expenses of Rs.15,000 p.a.

4. Leave Travel Allowance (LTA)Leave Travel Allowance (LTA) is an allowance given to an employee from his employer for his travel expenses. LTA is also known as Leave Travel Concession (LTC). Salaried Individuals can claim exemption of LTA u/s 10(5) of Income Tax Act, 1961. Salaried employees are required to submit the proof of travel bills to their employer to claim the exemption. The exemption on LTA cannot be claimed in your Income Tax return. LTA can only be claimed from your employer.

5. Medical Reimbursement – A Salaried Individual can claim medical expenses up to Rs.15,000 for which you must submit bills to your employer. Under this Employers reimburse the portion of the medical expenses incurred by the employee. Deductions can be claimed for the medical expenses incurred on your dependents. Out of Rs.15000, unclaimed amount of medical reimbursement will be added to your taxable salary.

6. Special Allowance – The amount of special allowance is fully taxable in your salary.

7. Bonus – Any bonus paid to employees as performance incentive is fully taxable. This is all based on company polices. Bonus received by the employee is fully taxable in the hands of the employee on receipt basis and will be included in the gross salary of employee.

8. Employee contribution to Provident Fund – Employer and Employee both have to contribute a 12% of the employee’s basic salary every month towards Employee Provident Fund (EPF). This benefit is given to employees for their retirement. Employee’s contribution Deduction is available under Section 80C.

Amendment- In Budget 2018 proposals – EPF Contribution for women employees has been reduced to 8% from 12%. The contribution in respect of employer contribution remains same at 12%.

9. Professional TaxProfessional tax is a tax on employment, which is levied by a state. The maximum amount of professional tax that can be levied by a state is Rs 2,500. It is usually deducted by the employer and deposited with the state government. Professional tax is allowed as a deduction from your salary income while filing your Income Tax Return. No Professional Tax can be charged in Union Territories that is why there is no professional tax in Delhi

What is Medical Reimbursement? What is the difference between Medical Reimbursement, Allowance and Mediclaim?

Medical Reimbursement, Medical Allowance and Mediclaim , all these sound similar but they all have different tax implications in Income Tax Act.

Medical Reimbursement –

Medical Reimbursement is a reimbursement of medical expenses incurred by the employee for his own or his family member’s*. To claim this reimbursement, an employee is required to submit medical bills or cash memos to his employer and after verification by the employer, the amount will be reimbursed up to a certain limit. This reimbursement is not pre-determined or fixed. Medical Reimbursement up to Rs. 15000 p.a. is exempt from Income Tax.

*family member’s include: The Spouse and Children of the employee. Children may be dependent or independent (married or unmarried). Parents, Brothers & Sisters of the employee wholly or mainly dependent on the employee.

The Medical bills may not necessarily be of some Govt. Hospital or any other Hospital. It can be of any expense incurred on Medical Treatment for self or family members in private clinic/hospital etc. Thus, Medical Reimbursement is a Tax-free perquisite (up to extent of Rs.15000).

Apart from the above exemption of Medical Reimbursement, the following are also not taxable as per section 17(2) of Income Tax Act if treated in India:

1. Any amount of medical expenditure incurred by the employee for self or family members at a hospital run by the employer.

2. Any amount reimbursed for treatment in Government hospital or a hospital maintained by local authority or hospital approved by the Government for employees’ treatment.

3. Any amount paid by the employer towards the scheme of General Insurance Company for insuring the health of the employee.

In Budget 2018, Standard deduction of Rs.40,000 has been proposed to replace Transport Allowance of Rs.1600 p.m i.e Rs. 19,200 p.a and reimbursement of miscellaneous medical expenses of Rs.15,000 p.a.

Can I claim medical expenditure related to previous years?

The medical expenditure, which is incurred by the employee in the said financial year, can be claimed in same financial year itself by the employer and not of any other previous years.

Medical Allowance –

Medical allowance is a fixed component that you receive as part of your monthly salary; such allowance is taxable under the head salary income. No bills are required to be submitted for taking this allowance.

Difference between the Medical Reimbursement and Medical Allowance:

Medical Allowance and Medical Reimbursement both are the part of the salary structure but Medical Allowance is just an allowance and is fully taxable in the hands of employee whereas Medical Reimbursement is a perquisite and is exempt to a certain limit if employee submits original medical bills to employer. Medical Reimbursement is a Tax Free Component and it is exempted up to the amount spent by employee or Rs.15000 whichever is less.

For Example:

A) Mr. Kumar is working in XYZ Private Ltd. and spent Rs.12, 500 on medical expenditure on his and his spouse for the purchase for medicines during the financial year. Thus, to claim this medical expenditure from employer, he is required to submit original medical bills or cash memos to XYZ Private Ltd. to claim income tax exemption to the extent of Rs.15,000.

B) Alternatively, in case where Mr. Kumar has incurred medical expenses of more than Rs.15,000 for example Rs.22, 000, in such scenario Mr. Kumar can only claim tax exemption from his salary income to the extent of Rs.15,000 and the remaining Rs.7,000 will become taxable as per Income Tax Slab rate.

Mediclaim –

Mediclaim refers to Medical Insurance Premium or Health Insurance Premium. Deduction u/s 80D can be claimed on the premium paid towards mediclaim policy taken on the health of the self, spouse, parents or dependent children. But, the payment should be made by any mode, other than cash.

Medical insurance premium paid for Self, Spouse or dependent children can be claimed u/s 80D upto Rs 25,000. This limit has been increased to Rs 25,000 in Budget 2015-2016 which was earlier Rs.15,000.

If such person is specified as a senior citizen then the deduction amount will be Rs. 30,000 for AY 17-18.

An additional deduction for Medical Insurance premium paid for parents is tax deductible to the extent of Rs 25,000,if they are less than 60 years of age.

If your parents are senior citizens (60 years and above) then the maximum allowable deduction is Rs 30,000.

Amendment: The Limit of Rs.30,000 for senior citizens has been increased to Rs.50,000 in Budget 2018.

What is Conveyance Allowance?

The employers offer many allowances to their employees. One of the allowance is given for conveyance.

Conveyance Allowance also known as Transport Allowance granted to an employee to meet expenditure on commuting between residence and place of duty.

It is exempted up to Rs. 1,600 per month i.e Rs.19,200 p.a (Rs. 3,200 per month for blind, deaf, dumb and handicapped employees) under Section 10(14) of Income Tax Act.

Amount paid over and above the conveyance allowance prescribed limit is taxable under the head Income from Salaries. This exemption can be claimed by salaried individual employee.

Please do remember that you cannot claim the same at the time of filing your Income Tax return if your employer has not provided you the same.

In Budget 2018, Standard deduction of Rs.40,000 has been proposed to replace Transport Allowance of Rs.1600 p.m i.e Rs. 19,200 p.a and reimbursement of miscellaneous medical expenses of Rs.15,000 p.a.

Can You Claim Both HRA And Home Loan For Tax Exemption?

Can You Claim Both HRA And Home Loan For Tax Exemption?

Yes, you can claim tax exemption on both house rent allowance (HRA) and repayment of housing loan. In case you are living in a rented house and paying home loan on another house – even if both the houses are located in the same city – you can claim tax benefit.

Salaried individuals who live in a rental accommodation can claim HRA to lower their taxes. It is partially exempted. However, if an individual do not live in a rented accommodation, then the HRA is fully taxable.

The deduction on HRA is the lowest of the following under Section 10(13A) of the Income Tax Act:

a) Actual HRA Received

b) Actual Rent paid reduced by 10% of Salary

c) 50% of basic salary in case where taxpayer is residing in a metro city.

d) 40% of basic salary in case where taxpayer is residing in a non-metro city.

On the other hand, if you are paying a home loan you can also claim tax benefits on amount of principal and interest payments. Principal repayment, under Section 80C of the Income Tax Act, is exempted up to Rs. 1,50,000. And on interest repayment, exemption can be claimed up to Rs. 2,00,000, under Section 24.

Illustration 1:

Suppose Mr. Aditya lives in New Delhi and earns a basic salary of Rs. 40,000 per month. The HRA received by him is Rs. 18,000 and actual rent paid is Rs 12,000. How much exemption can he claim?

Solution: Let us understand the factors affecting HRA calculation.

a) Actual HRA received is (Rs 18,000 x 12) = Rs 2,16,000

b) Actual rent paid (Rs 12,000 x 12) – 10% of salary [(Rs 40,000 x 12) x 10%] = Rs 96,000

c) 50% of basic salary i.e. [(Rs 40,000 x 12) x 50%] = Rs 2,40,000

Therefore, Rs 96,000 is the least among the above obtained figures so Mr. Aditya can get Rs 96,000 exempt.

Illustration 2:

You are working in a city where you are living in a rented accommodation and you bought a house in your hometown.

Samarth works in Noida, but his wife and children live in Jaipur. He recently bought a house in Jaipur on a loan while he lives in a rented house.

Samarth can claim: HRA for rent he pays for the house in Noida, deduction of interest on home loan up to Rs.2,00,000 u/s 24b and principal repayment deduction under section 80C.

What is Leave Travel Allowance (LTA)?

The Leave Travel Allowance (LTA) is also known as Leave Travel Concession (LTC) which is an allowance given by the employers to their employees, which can be utilized for their travel expenses. LTA is an assistance received by the employee from his employer for travelling on leave.

The Salaried employee is required to submit the actual bills to the company for claiming LTA/LTC. Salaried Individuals can claim exemption of LTA u/s 10(5) of Income Tax Act, 1961. The amount of LTA provided depends upon the employee’s working position.
LTA Rules for Exemption u/s 10(5):

LTA Exemption is available for travel assistance given by the employer to the employee or his family. The exemption is claimed for two journeys in a block of four years. Presently, the block of 2018-2021 is going on. Income Tax Department makes these blocks. The exemption if remains unclaimed can be carried forward to next year.

Note: For the purpose of this section, family includes:Note: For the purpose of this section, family includes:

  • Spouse of Employee
  • Children of Employee
  • Parents of Employee (mainly or wholly dependent on the Employee)
  • Brothers and sisters of Employee (mainly or wholly dependent on the Employee)

The LTA rules for exemption are as follows:

  1. One can travel any place in India for holiday (Only Domestic Travel is considered). Actual journey is must to claim LTA exemption. No international trips are considered.
  2. To claim LTA, the mode of travel should be either air, railway or public transport.
  3. Exemption of LTA cannot be claimed for more than 2 children of an individual.
  4. Children born out of multiple birth after the first child will be treated as one child only.
  5. LTA Exemption is not allowed if it is encashed by the employee without going on any journey. The whole LTA amount is chargeable to tax.
  6. Expenses made on food, shopping, local conveyance, Hotel accommodation etc. are not eligible for exemption.
  7. LTA exemption is available only for two journeys within a block of four calendar years.
  8. The family of the employee can also take a tour without the employee and still claim exemption u/s 10(5). The family here refers to employee’s spouse, two children and wholly dependent parents or brothers & sisters of the employee.
  9. The exemption is available for touring while in service or after termination or retirement from service.
  10. Proof of Travel shall be required for the purpose of Tax Audit.

What are LTA block years?

Leave Travel Concession or LTA block years are made by Income Tax Department to provide exemptions, which can be claimed twice within a block of four calendar years.

Block No. Time Period
1 2006-2009
2 2010-2013
3 2014-2017
4 2018-2021

*Presently, the block of 2018-2021 is going on, which is the 9th Block year.

Carry over Concession/ Unclaimed LTA

In case where assessee did not utilize LTA provided by his employer either once or twice (as per the permitted limit) in a block period of 4years, then he can still claim LTA exemption in the year immediately succeeding the 4 years block period. It is known as carry over concession.

Let’s understand this with the help of an example:

Suppose Mr. Aditya claimed only one exemption during the 8th block which lasted from 2014-17. He still has one exemption remaining. So when can he claim it?

He can claim this travel concession in the next year, i.e. 2018, which is a part of 9th block period. So, in the 9th block period (2018-21), he can claim 3 exemptions in total but he needs to claim the carry over concession of previous block in 2018 itself and not in the later years.

Procedure to claim LTA

Employees can claim LTA through employer within the due date in which LTA can be claimed and for which employees are required to submit the proof of travel bills such as tickets, boarding pass etc.along with the mandatory declaration.

I have not claimed LTA in Return, When can I claim it?

LTA exemption cannot be claimed at the time of filing your return. The bills for your travel against LTA can only be claimed through your employer. You can claim LTA twice in a block of four years. Unclaimed LTA can be carried forward to the next year, therefore you can request your employer not to deduct tax on the same and allow you to claim it next year. You cannot claim exemption if you have missed submitting your travel bills.

Also, to claim LTA, travel expenditure amount with proofs of documents (travel bills) should be declared and submitted with Form 12BB to the employer at the end of the financial year.

Taxability of Arrear of Salary – Relief under Section 89(1)

If you have received any portion of your salary in arrears or in advance, or your have received family pension in arrears, you are allowed to claim a tax relief under section 89(1) read along with Rule 21A.

If you’re a Government employee or an employee of a PSU or company or co-operative society or local authority or university or institution or association or body, in such cases you are required to furnish Form No. 10E to your employer to claim relief u/s 89(1).

Normally salary income is received when it becomes due but many times an employee may receive part of his salary in the form of arrear or advance. In such a case relief of tax u/s 89 is allowed under Income Tax Act, 1961.

The Relief u/s 89(1) is available under the following cases:

  • Arrears or advance salary received; For. e.g. those received under the 7th pay commission and are eligible in 2018-19.
  • Salary received for more than 12 months in the same financial year;
  • Family Pension being paid in arrears; For. e.g. Again, those received under the various pay commissions.
  • Gratuity;
  • Compensation on termination of employment; and
  • Commuted Pension

Relief u/s 89(1) can be claimed only if tax paid is actually higher due to arrears received. In case there is no extra tax liability, relief will not be allowed. Where an employee has received VRS Compensation then no relief shall be granted under Section 89 if such employee has claimed exemption u/s 10(10C) for Voluntary Retirement Scheme. An assessee can claim either exemption under section 10(10C) or relief u/s 89 but not both together.

Lets us understand the Calculation of Relief under Section 89(1) with Example:

Let us assume Mr Desai earned Rs 5,20,000 as total income in FY 2017-18 i.e. AY 2018-19 which also includes Rs 1,00,000 as arrears of salary for FY 2012-13. His salary in FY 2012-13 i.e. AY 2013-14 was Rs 3,20,000. In this situation, the relief u/s 89(1) which Mr Keshav can claim will be as per the given calculation.

  • Step 1: Tax on the total income including arrears of salary, i.e. Rs 5,20,000 for the FY 2017-18 = Rs 29,870
  • Step 2: Tax on the total income excluding arrears of salary, i.e. Rs 4,20,000 for the FY 2017-18 = Rs 15,450
  • Step 3: Now subtract the value obtained in step 2 from the value obtained step 1, i.e. Rs 29,870 – Rs 15,450 = Rs 14,420
  • Step 4: Tax on the total income including arrears of salary of FY 2012-13, i.e. Rs 4,20,000 is Rs 22,660.
  • Step 5: Tax on the total income excluding arrears of salary for FY 2012-13, i.e. Rs 3,20,000 is Rs 12,360.
  • Step 6: This step-6 is not required in this example because arrears are related to one year & not multiple years
  • Step 7: Now subtract the value calculated in step 5 from the value calculated in step 4, i.e. Rs 22,660 – Rs 12,360 = Rs 10,300
  • Step 8: Subtract the value calculated in step 6 from the value obtained in step 3, i.e. Rs 14,420 – Rs 10,300 = Rs 4,120

Can you own a House And can Still Claim HRA?

Can You Claim Both HRA And Home Loan For Tax Exemption?

Yes, you can claim tax exemption on both house rent allowance (HRA) and repayment of housing loan. In case you are living in a rented house and paying home loan on another house – even if both the houses are located in the same city – you can claim tax benefit.

Salaried individuals who live in a rental accommodation can claim HRA to lower their taxes. It is partially exempted. However, if an individual do not live in a rented accommodation, then the HRA is fully taxable.

The deduction on HRA is the lowest of the following under Section 10(13A) of the Income Tax Act:

a) Actual HRA Received

b) Actual Rent paid reduced by 10% of Salary

c) 50% of basic salary in case where taxpayer is residing in a metro city.

d) 40% of basic salary in case where taxpayer is residing in a non-metro city.

On the other hand, if you are paying a home loan you can also claim tax benefits on amount of principal and interest payments. Principal repayment, under Section 80C of the Income Tax Act, is exempted up to Rs. 1,50,000. And on interest repayment, exemption can be claimed up to Rs. 2,00,000, under Section 24.

Illustration 1:

Suppose Mr. Aditya lives in New Delhi and earns a basic salary of Rs. 40,000 per month. The HRA received by him is Rs. 18,000 and actual rent paid is Rs 12,000. How much exemption can he claim?

Solution: Let us understand the factors affecting HRA calculation.

a) Actual HRA received is (Rs 18,000 x 12) = Rs 2,16,000

b) Actual rent paid (Rs 12,000 x 12) – 10% of salary [(Rs 40,000 x 12) x 10%] = Rs 96,000

c) 50% of basic salary i.e. [(Rs 40,000 x 12) x 50%] = Rs 2,40,000

Therefore, Rs 96,000 is the least among the above obtained figures so Mr. Aditya can get Rs 96,000 exempt.

Illustration 2:

You are working in a city where you are living in a rented accommodation and you bought a house in your hometown.

Samarth works in Noida, but his wife and children live in Jaipur. He recently bought a house in Jaipur on a loan while he lives in a rented house.

Samarth can claim: HRA for rent he pays for the house in Noida, deduction of interest on home loan up to Rs.2,00,000 u/s 24b and principal repayment deduction under section 80C.

What is House Rent Allowance?

House Rent Allowance or HRA is a component of the salary portion, which is provided by the employer to his/her employee. Employees or Salaried Individuals who live in a rented house property can claim full or partial HRA exemption under section 10(13A). However, HRA is fully taxable in the hands of employees if they don’t live in a rented accommodation.

Your HRA Calculation depends upon:

  • Salary
  • HRA Received
  • Rent paid
  • Location of your rented residence

    HRA Exemption Rules

    HRA Exemption will be least of the following:

    1. Actual HRA Received
    2. Actual Rent paid reduced by 10% of Salary
    3. 50% of basic salary in case where taxpayer is residing in a metro city.
    4. 40% of basic salary in case where taxpayer is residing in a non-metro city.

    The least of the above will be exempt from tax.

    Need of PAN Number of Landlord

    Where you are residing in a rental accommodation and are making a rental payment in excess of Rs 1,00,000 annually – Then you must obtain the landlord’s PAN or you may lose out on the HRA exemption.

    Any Rent paid to NRI landlords, TDS shall be deducted at 30% before making payment towards rent.

    If Employer Doesn’t provide HRA as a Salary Component

    If you are making rental payments for any accommodation occupied by you for your own residence, but do not receive HRA from your employer, you can claim deduction under section 80GG.
    Conditions to claim deduction u/s 80GG –

    • You are self-employed or salaried.
    • You have not received HRA from your employer at any time during the year for which you are claiming 80GG.
    • You or your spouse or your minor child or HUF of which you are a member do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.

    Deduction under Section 80GG if HRA not received

    The least of the will be considered as the deduction under this section:

    • Rs 5,000 per month;
    • 25% of adjusted total income*;
    • Actual Rent less 10% of adjusted total Income*

    *Adjusted Total Income is calculated as Total Income minus long-term capital gain, short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).

    Can I Claim HRA and Deduction on Home Loan Interest as well?

    Yes you can claim both tax exemptions together. If you are a home owner paying home loan interest but living in a rented accommodation then you can get tax benefits for both cases.

    How can I Claim HRA When Living With Parents?

    Illustration: Dhruv works in an MNC in Hyderabad. He receives HRA/house rent allowance as a part of his salary. But he doesn’t live in a rented accommodation; he lives with his parents instead. How Druv can take the benefit of HRA allowance provided by his employer?

    Dhruv can pay rent to his parents (PAN Number is required in case paying rent of more than Rs.1,00,000 p.a) and can claim the allowance provided they own the place they currently live in. He is required to enter into a rental agreement with his parents and transfer rental money in to their bank account every month.

    This way Dhruv can make a good gesture and give back to his parents, and Secondly, He can save some taxes.

    But remember: Dhruv’s parents will have to show the rent as a income in their Income Tax returns. This is how you can save taxes when living with Parents.

    What is Form 10E?

    Form 10E- To claim relief under Section 89(1), you must file Form 10E with Income Tax Department. Taxpayers who claim relief u/s 89(1) without filing Form 10E receive notice from the Income Tax Department regarding the same.

    Is it mandatory to file Form 10E?

    From AY 2015-16 (FY 2014-15) The Income tax department has made it mandatory for the person claiming the relief u/s 89 to file an online Form 10E on the tax department’s e-filing website. Those who missed to file Form 10E were not allowed the relief while processing their tax returns and might get the notice for non-filing of Form 10E.

    Let’s understand the process to file Form 10E:

    Step-1 Go to https://incometaxindiaefiling.gov.in/ and login with your ‘User ID’ (i.e. PAN number),‘Password’ along with ‘Captcha Code‘.

    Process to file Form 10E

    Step-2 Click on tab titled ‘e-File’ and select ‘Income Tax Forms’ from the drop down menu.

    Step-3 Choose ‘Form 10E’- Form for relief u/s 89 from the drop down menu.

    Step-4 Fill the relevant Assessment Year & Submission mode and press ‘Continue’ button.

    Step-5 You will find the screen shown below with instructions to e-file Form 10E. You can also read the instructions on how to file Form 10E given in the first blue tab and then fill the relevant information by clicking on other tabs.

    Step-6 Click on ‘Preview & Submit‘ button to complete the process.

    Conclusion:

    When in a financial year an employee receives salary in arrears or advance then in order to save your additional tax burden due to delay in receiving income as per section 89(1) relief for income tax has been provided. However, for claiming this relief an employee must have to submit the Form 10E with income tax department.