October 23, 2020

Itax Software

Income Tax Software

Tax benefits on paying Rent & taking Home Loan Interest, Plus Automated All in One TDS on Salary for West Bengal Govt Employees for F.Y 2018-19

As
per the latest Central Finance Budget 2018-19 have some changed along
with the Income Tax Slab for the Financial Year 2018-19. Newly Introduce
Income Tax Standard Deduction Max Rs. 40,000/-. The Tax benefits who
have already get the House Building Loan, they have also good news in
this Central Financial Budget 2018-19. Now, look how to get tax benefits
on paying Rent & taking home loan interest:-

Click to download automated All in One Tax preparation Excel Based Software for West Govt employees for the Financial Year 2018-19. [
This Excel-based software can prepare at a time your Tax Compute
sheet + Individual Salary Structure + Individual Salary sheet +
Automated HRA Exemption Calculation + Automated Form 16 Part A&B and
Part B for Financial Year 2018-19]

 


The
people who are paying rent for their accommodation or those who have
bought or constructed a property by taking home loans are eligible for
certain tax benefits. The Tax Benefits that can be availed by you have
been discussed in this article which is divided into two parts:

I. If you are paying rent.
II. If you have bought/constructed property by taking a home loan.

These are discussed as follows:

I. IF YOU ARE PAYING RENT.

a) Deduction under section 10(13A) for House Rent Allowance.
House
Rent Allowance (HRA) is received by the salaried class. A deduction is
permissible under Section 10(13A) of the Income Tax Act, in accordance
with Rule 2A of the Income Tax Rules. You can claim exemption on your
HRA under the Income Tax Act if you stay in a rented house and get an
HRA from your employer.

Click here to Download Automated H.R.A. Exemption Calculator U/s 10(13A)


The
HRA deduction is based on salary, HRA received, the actual rent paid
and place of residence. The place of residence is important. For Mumbai,
Kolkata, Delhi or
Chennai, the tax exemption on HRA is 50 percent of the basic salary,
while for other cities it is 40 percent of the basic salary.

The city of residence is to be considered for calculating HRA deduction.

The least value of these is allowed as tax exemption on HRA:

  • Actual
    rent allowance the employer provides as part of salary in the relevant
    period during which the rental accommodation was occupied
  • Actual rent paid for the house, less 10 percent of basic pay
  • 50 percent of basic salary if you reside in Mumbai, Calcutta, Delhi or Chennai, or 40 percent if you reside in other cities.
The following points need to be kept in mind for availing this deduction:
  • In order to claim the exemption, the rent must actually be paid for the rented premises which you occupy.
  • Also,
    the rented premises must not be owned by you. As long as the rented
    house is not owned by you, the exemption of HRA will be available up to
    the limits specified.
  • For
    the purpose of this deduction, salary means basic salary and includes
    dearness allowance, if the terms of employment provide it, and
    commission based on a fixed percentage of turnover achieved by the
    employee.
  • The
    deduction is available only for the period during which the rented
    house is occupied by the employee and not for any period after that.
  • It
    is to be noted that the tax benefits for home loans and HRA are two
    separate aspects. In case you are paying rent for an accommodation, you
    can claim tax benefits on the HRA component of your salary, while also
    availing tax benefits on a home loan.
  • You
    need to submit proof of rent paid through rent receipts, duly signed
    and stamped, along with other details such as the rented residence
    address, name of the owner, period of rent etc.
How it applies:- For
example, assume one earns a basic salary of Rs 20,000 per month and
rents a flat in Mumbai for Rs 5,000 per month. His actual HRA is Rs
8,000. He is eligible for 50 percent of the basic pay for HRA exemption.

Least of:

Actual HRA received = Rs 8,000
50 percent of basic salary = Rs 10,000
Excess of rent paid over 10 percent of salary, i.e., Rs 5,000 less Rs 2,000 = Rs 3,000.

As such, Rs 3,000 per month is the least and will be the exemption allowable for HRA deduction.

b) Deduction under Section 80GG for Rent Paid.
Under
Section 80GG, an Individual can claim a deduction for the rent paid even
if he does not get HRA. Not many people are aware of this deduction.

Section 80GG allows the Individuals to a deduction in respect of house rent paid by him for his own residence.

Such deduction is permissible subject to the following conditions:-

  • The
    Individual has not been in receipt of any House Rent Allowance from his
    employer      specifically granted to him which qualifies for exemption
    under section 10(13A) of the Act;
  • The Individual files the declaration in Form No. 10BA.
  • The employee does not own:
1.      
1.     any
residential accommodation himself or by his spouse or minor child or
where such Individual is a member of a Hindu Undivided Family, by such
family, at the place where he ordinarily resides or performs duties of
his office or carries on his business or profession; or
2.     at
any other place, any residential accommodation being accommodation in
the occupation of the Individual, the value of which is to be determined
under Section 23(2)(a) or Section 23(4)(a) as the case may be.
  • He
    will be entitled to a deduction in respect of house rent paid by him in
    excess of 10% of his total income, subject to a ceiling of 25% thereof
    or Rs. 5,000/- per month, whichever is less. The total income for
    working out these percentages will be computed before making any
    deduction under section 80GG. In other words, eligibility will be the
    least amount of the following:-
1.      
1.     Rent paid minus 10 percent the adjusted total income.
2.     Rs 5,000 per month.
3.     25 percent of the adjusted total income.
  • The
    deduction will also not be available to an assessee if any residential
    accommodation is owned by the assessee at any other place, which he is
    occupying, and the concessions in respect of self-occupied house are
    claimed by him for that property. In such a case, no deduction will be
    allowed in respect of the rent paid, even if the person does not own any
    residential accommodation at the place where he ordinarily resides.
II. IF YOU HAVE BOUGHT/CONSTRUCTED PROPERTY BY TAKING HOME LOAN.

a) Deduction available under Section 80 C for Principal repayment of the home loan.

As per section 80C, an Individual and a HUF can claim principal
repayment component of a loan along with other eligible items like Life
Insurance Premium, NSCs, EPF, ELSS and stamp duty and registration
charges etc.

  • The overall deduction is restricted to Rs. 1.5 lakh in a year.
  • Remember
    the deduction is only for residential house property and not for
    commercial property. Besides, it is also available only for purchase or
    construction of a house and not for renovation, additions or repairs on
    any existing house property.
  • You
    can claim principal repayment if you have taken a loan from a specified
    entity like banks, HFCs, Central & State government, LIC, NHB,
    Public Company or a Public Sector Undertaking. Even a University
    established by law or a local authority or corporation established under
    State or Central laws also are covered under the category.
  • Moreover,
    in case you sell the house acquired with a home loan, within five years
    from the end of the year in which possession of the house was taken,
    all the deduction allowed for Principal repayment in earlier years shall
    be withdrawn. This shall be treated as income of the year in which this
    property is sold. Moreover, no deduction under Section 80 C shall be
    allowed for principal repayment made during the year.
b) Deduction available under Section 24(b) for Interest payment.
In
addition to the deduction for Principal, Section 24(b) of the Income
Tax Act allows you a deduction for interest payable on loan taken to buy
or construct a house property, or even for repair or reconstruction of
an existing property.

  • This benefit is available for the residential and commercial property as well.
  • It
    may be interesting to note that even processing fee paid in respect of
    home loan shall also be treated as interest so you can claim the
    deduction in respect of processing fee paid for taking such loan.
  • Even
    in cases where you prepay your loan, you will be entitled to claim the
    amount of any prepayment fee paid to the bank for such prepayment. Here
    you can claim the benefits in respect of loans taken from your friends
    and relatives besides banks and financial institutions.
  • The
    deduction is available for self-occupied as well as let-out properties
    too. For self -occupied property, the deduction is restricted to Rs. 2
    lakhs p.a. For let-out property, you can claim full interest. If you
    have more than one self- occupied houses, you have to select one house
    as self-occupied and the other house/s shall be treated as let-out. In
    this case, you have to offer notional rent for taxation and can claim
    the full interest payable. So in order to maximize your tax benefits, it
    is always advisable to treat the property on which interest is lower as
    self-occupied in case interest payable on any or all of the property is
    more than Rs.2 lakhs.
  • For
    under construction property, you can only claim the interest deduction
    from the year construction is complete and possession was taken.
    However, in respect of interest paid for the period prior to the year
    for taking possession, you can claim aggregate of such interest in five
    equal installments from the year in which construction is completed.
    There is no reversal of interest benefit even if you sell the house
    before five years as is applicable for repayment benefits.

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