An employee is either provided with a rent free residential accommodation by his employer or if he is staying in a rented house, then he can claim exemption in respect of House Rent Allowance received by him while computing his salary for the purpose of Income tax. However it may happen that employee could not recover the rent paid by him from his employer, then a special deduction is granted under Section 80GG for the excess cost of house rent paid for any furnished or unfurnished accommodation. The deduction under this section is available provided the following conditions are satisfied:

• It can be availed by all individuals (such as businessman) provided they have not availed exemption for the rent paid under any other Section.
• The individual claiming for the deduction should own the residential property. In other words, if the spouse is paying the rent, or the assessee is a member of a Hindu Undivided family (HUF) and the HUF owns a house at the place where the individual normally stay, work or conduct business, in such a case, the individual cannot claim any deduction.
• The assessee should file a declaration in Form 10BA which provides for the details regarding the rent paid.

The amount allowed as deduction is the least of the following:

• Rent / lease amount paid less 10% of total income
• Rs.2000 per month
• 25% of total income

Here, total income means the “Gross Total Income”, less long term capital gain, and short term capital gain that would be charged at a concessional tax rate (like STCG from sale of shares), less all deductions other than the deduction under Section 80GG.

Therefore, an assessee has a choice either to claim exemption of HRA u/s 10(13A) (Under the head “Salary”) or deduction for rent paid u/s 80GG and he must exercise the choice in a manner most beneficial to him.

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