Sunday, March 3, 2013

I.T. Deductions :- HRA or Rent allowance for All Employees

Rent Allowance

              All those people who do not have their own house and stay in a rented accommodation or employees who do not get accommodation or house rent allowance from their employer enjoy a special tax deduction on the rent paid by them. This deduction is allowed under section 80GG of the Income Tax Act in which an individual can avail 25% deduction on the rent amount. However, the limit is restricted to Rs 2000 per month and has not changed for many years, which is now expected to change this year.

Moreover, under the Income Tax Act 1961, there exist 2 dissimilar sets of tax treatments with reference to rent free lodging provided by the employer. While a Government employee only pays the license fee, non government sector employees who get rent-free lodging from their employees are taxed heavily at 7.5-15% of the salary. There is a necessity to maintain uniformity in taxes and a new system needs to be introduced offering equal rights to employees without discrimination.

Standard exemption should continue as in the past and should be given to all employees who are salaried, while the transport allowance deduction should increase.

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