Claim deduction @ Rs. 5,000/- pm if living in a rented premises- Section 80GG

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Claim deduction 80GG

Query 1]

I am not owning any house as of now and living in a rented premises. Neither me nor may parents have any house property. My old property was dispos off by my father during his life time. I am working as an independent catering contractorship. Whether the rent paid by me would be deductible from all my income which I am receiving after tax deduction (TDS). I have read in your column about the deduction of rent payment. Please advise. [rvde********@gmail.com]

Opinion:

Taxpayers who don’t own a house and are staying in a rented premise are eligible for deduction u/s 80GG of the Income Tax Act towards rent Payment. Not aware of the deduction conferred by section 80GG, many individual (whether salaried or businessmen) end up paying higher tax than otherwise they would have been liable to pay.

The conditions for claiming deduction under section 80GG are as under:-
a] Individual has to prepare a declaration in Form No.10BA.
b] Individual or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
Amount of deduction – The deduction admissible shall be the lower of the following:
(i) house rent incurred in excess of 10% of “Total Income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 2000 per month. [Rs. 2,000/- is proposed to be raised to Rs. 5,000/- in the recent Union Budget-2016. i.e., From FY 2016-17, Rs. 5,000/- would replace Rs. 2,000/-] [Note: The term “Total income” means total income after allowing all deductions expect the one provided under this section itself. In case of salaried assessee who is in receipt of HRA from the employer, no deduction u/s 80GG is admissible. However, they can claim deduction u/s 10(13A) of the Income Tax Act-1961.]

In your specific case, if all other conditions are satisfied, you can claim deduction u/s 80GG by paying the house rent.

Query 2]

My employer is to pay out some arrears, received from an outside source. The money is already in their possession and they are in the process of calculating individual amounts. Thus, the disbursal is likely to be in next FY. The money is receivable in present FY ,but will be received in the next FY. Is it compulsory to pay the IT on this amount in present FY? [Suvimal Dutta, Bhilai – drsdutta1@gmail.com]

Opinion:

  1. Basis of charge in respect of salary income is fix by section 15 of the Income Tax Act-1961. It is chargeable to tax either on due basis or on receipt basis, whichever matures earlier. It may be noted that actual receipt of salary income is not the sole criteria for its taxability. [Most of the taxpayers may not be knowing the income tax provision with regard to taxability of Advance Salary. Advance salary is also taxable in the year in which it is received even though it could be the characterized as “Income” in subsequent years. In such case, the relief u/s 89 could be claimed by the taxpayers in subsequent years.]
  2. In your case, it appears that the salary is already due to you in the preceding financial year. However, only the disbursement is deferr for some technical reasons. If it is so, the arrears would b taxable in the preceding financial year only and not in the financial year in which the amount is receive.

Query 3]

I have resigned a company and I have claimed my EPF. The same amount is invested in FD. So, am I liable to pay IT on the interest earned on EMF amount by FD? [Nitin Ranade-ranade.shel@gmail.com]

Opinion:

  1. Recent controversy over the taxability of EPF is all over. Nothing is taxable on the maturity proceeds of the EPF now. Neither principal nor interest of amount withdrawal from EPF account is taxable. However, subsequent income from the fund invested in FD would be liable for income tax.
  2. In general withdrawal from recognized EPF is tax exempt. However it is not a blanket exemption.
    a] Rule 8 of the Part A of the Fourth Schedule to the Income Tax Act-1961, lays down conditions on the fulfillment of which the accumulate balance due and becoming payable to an employee participating in a recognise provident fund is to be exclude from the computation of his total income. These conditions are:
    (i) he should have rendered continuous service with his employer for a period of five years or more, or
    (ii) in a case where he has not rendered such continuous service, the service should have been terminated by reason of employee’s ill health or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, or
    (iii) if on cessation of employment, the assessee has obtain employment with any other employer, the accumulate balance due and payable to the employee should have been transferr to his individual account in any recognize provident fund by such other employer. (In such a case, if a part of accumulate balance is transferre, the exclusion from total income would be such part of total income).
    b] If the conditions enumerated above are not satisfie, accumulated balance is liable in accordance with a special mode provide in Rule 9 to part A of the Fourth schedule o the Income Tax Act-1961

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