One of the major deductions for salaried employee from their salary is HRA i.e. House Rent allowance where the maximum amount allowed as deduction is lower of the following:
1. Actual HRA received.
2. 50% of basic salary for those residing in metro cities and 40% for those living in non-metro cities.
3. Rent paid less 10% of basic pay.
More one deduction available under Income tax act with relation to rent paid for residential purpose is section 80GG wherein one gets deduction of lower of the following:
1. Rent paid less 10% of total income.
2. 5000 per month
3. 25% of total income
Now the main issue arises here is when person claims both simultaneously where the justification provided is that I was salaried for half year and self employed for half year so I want to claim both.
Logically speaking the argument is correct but theoretically and practically speaking if a person shown exemption u/s 10(13A) he cannot claim deduction under 80GG as section 80GG starts with a statement that:
“In computing the total income of an assessee, not being an assessee having any income falling within clause (13A) of section 10″. Thus, the assessee which is claiming exemption u/s 10(13A) is not eligible for 80GG.
Therefore if you are going to claim both simultaneously you will definitely receive notice from Income tax department for disallowance of deduction u/s 80GG. So if you dont wish to pay tax later with interest it’s better to not claim both.
Although it’s not a major deduction and therefore Income tax department is not concerned about this issue but CBDT should amend the section to take into consideration a situation where a person was self employed for half year and was salaried employee for another half year or any such situation.
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