HRA Allowances Not In Sync With Rents In Cities, Will Budget 2017 Address This?

HRA Allowances Not In Sync With Rents In Cities, Will Budget 2017 Address This?

HRA Allowances Not In Sync With Rents In Cities, Will Budget 2017 Address This?

Last financial year, Finance Minister Arun Jaitley announced in his Budget speech that the annual deduction under Section 80GG on house rent allowance (HRA) will be increased from Rs 24,000 to Rs 60,000. On a monthly basis, the amount increased from Rs 2,000 to Rs 5,000. This brought some relief to those living on rent and without an HRA component in their salaries. For someone earning Rs 5 lakh per annum, this provision would have meant an additional saving of Rs 3,708.  Despite the raise, the amount doesn't sync with the kind of housing rents floating in the market. The Budget 2017 on Feb 1 should focus on making the limits more realistic for those who draw lump sum or are self-employed.

Demands of self-employed individuals from Union Budget 2017

When we talk about the self-employed, we are talking about almost half the working population of India. A National Sample Survey (NSS) conducted in 2012 points out that almost 51 per cent of workforce is self-employed. It becomes important to encourage this circle to be tax payers if the government's outlook is to widen the tax base. As of today, a meagre three per cent of the workforce declares their income.  

Also read: #Budget2017: Tax Exemption Up to Rs 4L Unlikely, Citizens Wait For The Final Verdict

Rationalising the rent limits to at least Rs 10,000 is a necessity today. A cursory glance of Makaan.com will tell you that most homes on rent in cities are at a price tag of Rs 8,000 and above. In Chennai, for example, Rs 5,000 can fetch you 1RK (room, kitchen) and that too if you are lucky. In Mumbai, 1RK to 1BHK units in developing localities will cost you Rs 5,000 but there again, issues such as lack of amenities, absence of supporting infrastructure, water and electricity supply issues can pose to be a problem. Moreover, these homes are anywhere between 300-600 sq ft — a space too cramped for an average family of four.

Sure enough, the government does not stop a self-employed person from opting for healthier environs to live in. However, fixing Rs 5,000 per month as the limit is belittling the other perspective of the debate. While the real estate market has registered a slump over the past three years, investors took to renting their houses than wait for a sale opportunity. Some others did go for distress sales too. Largely, tenants bore the brunt of the slow moving market when rental accommodations became pricier on account of more demand for houses on rent than that on sale. 

However, industry experts pointed out that it enabled a lot of tenants to negotiate on the rent because of the excess supply of such homes. For those who wanted to escape rent escalations after every year, the supply in the market helped them switch to another accommodation at almost the same cost. However, we cannot deny that for practiced investors who look forward to rental returns, this was the perfect time to earn. After demonetisation, an added crash in home sales, too, led to fence sitters continuing in favour of their rented accommodations or homes previously owned by them. All of this makes the rental market expensive by the day.

As of now, exemption is allowed on the least of the following:

  • Rs 5,000 per month
  • Rent paid in excess of 10 per cent of one's income
  • 25 per cent of total income

Given that the government is focusing on real estate through direct and indirect ways such as the Real Estate Regulatory Authority (RERA), the Goods and Services Tax (GST), demonetisation, etc., it is natural that rental home seekers, especially those who are self-employed, would expect genuine and rational sops.

Last Updated: Fri Feb 03 2017

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