Any allowance specially granted to the tax payer by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the tax payer is exempt, subject to certain conditions. The exemption is restricted to the least of the following:
a. HRA actually received
b. Rent paid in excess of 10% of salary
c. 50% of salary in case the house is situated in Delhi, Mumbai, Kolkata and Chennai, and 40% in case the house is situated in any other city.
It is pertinent to note that HRA exemption is not available if such residential accommodation either owned by the tax payer or the tax payer has not actually incurred expenditure on payment of rent.
TAX BENEFIT FOR OWNERS – SELF OCCUPIED
In case a tax payer has one house property which is occupied i.e. used for own residence, then the annual value of such house property is taken to be nil and hence, there would not be any taxability.
If the tax payer has taken a housing loan for construction or acquisition of such house property, then he is eligible to claim deduction for the interest paid on the housing loan up to Rs 150,000 per annum subject to certain conditions.
Even the pre-EMI interest also qualifies for deduction mentioned above. Thus, a deduction can be claimed for the interest payable on the borrowed capital for the period prior to the financial year in which the property has been acquired or constructed in five equal installments starting from the financial year in which such property is acquired or constructed.
TAX BENEFITS FOR OWNERS WHERE THE PROPERTY IS LET-OUT
If the tax payer owns a house property which is let-out, then the rent received/receivable for such property is taxable as income under the head ‘house property’ subject to certain conditions.
A deduction for municipal taxes actually paid and a standard deduction of 30% of the annual value can be claimed by the tax payer.
Further, a deduction can be claimed for the interest actually paid (without limit) in case a housing loan has been taken for acquisition of such house property.