Notice received for claiming HRA exemption u/s 10(13A) and deduction 80GG for rent paid simultaneously

written by Income tax Expert | May 12, 2020

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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