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Check out the tax deduction
December, 14th 2009

I-T deduction on rent paid

Individuals including self employed can claim a deduction on the expenditure incurred towards payment of rent for the house occupied by them.

As per the provisions of the Income Tax Act, in computing the total income of an assessee , a deduction on the rent expenditure incurred for any furnished or unfurnished accommodation occupied by him is allowed. The residence should be used by the assessee only.

In order to avail this deduction, an assessee could be self-employed or a salaried employee. Further, he should not be in receipt of any house rent allowance (HRA).

The Income Tax Department may prescribe other conditions or limitations, with regard to the area or place in which the accommodation is situated and after taking into account other relevant considerations.

Normally, most of the salaried employees will be in receipt of HRA and accordingly the deduction on account of rent paid is governed by the provisions related to HRA under the IT Act. Amount of deduction is limited to the least of these:

Rs 2,000 per month 25% of total income for the year (excluding long-term capital gains and some specified incomes , before deductions for any expenditure).

Expenditure incurred in excess of 10% of total income towards payment of rent.

Some points to be noted:

The deduction will not be available to an assessee if the residential accommodation is owned by him, his spouse or minor child. It is also not available if the house is in the same city where he works.

In case a house is owned elsewhere:

The deduction will not be available to an assessee if a residential accommodation is owned by him at another place, and he is claiming deductions on it as a house occupied by himself under Section 23 of the IT Act.

In such a case, no deduction will be allowed in respect of rent paid, even if the person does not own any residential accommodation at the place where works.

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