House Rent Allowance HRA

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House rent allowance or HRA is that component of the salary that the employee receives toward the payment of rent. Salaried individuals who live in rented houses can claim the HRA to lower their tax payments. This exemption is available under Section 10(13A) of the Income Tax Act.

How is tax exemption from HRA calculated?

HRA exemption is allowed least of the below:

  • Actual HRA received by the employee.
  • 40 % of salary for non-metro cities or 50 % of salary if the rented property is in a Metro city like Mumbai, Delhi, Bengaluru, Chennai, etc).
  • Actual rent paid less than 10% of salary and dearness allowance.

For above calculation, salary would include basic, dearness allowance and fixed percentage of commission.

Is there a provision to get both HRA and deduction on home loan as well?

One may claim the HRA as well as the deduction on home loan as well as neither has bearing on the other. They are mutually exclusive.

When do you need the landlord’s PAN?

If the payment of rent exceeds a sum of INR 1,00,000 annually, then one must provide the landlord’s PAN to claim the HRA exemption. If the landlord does not have a PAN card, then a declaration as per the circular no. 8/2013 dated 10.10.2013 must be given by the landlord. Tenants paying rent to Non Resident Indian landlords must deduct TDS of 30% before paying the rent.

What can you do if your employer does not provide your HRA? 

If you are paying rent but have not received HRA from your employer, then you are not precluded from claiming deduction under Section 80GG of the Act. You can claim if – 

  • You are self-employed or salaried
  • You have not received HRA in the year you are claiming 80GG
  • You do not own any residential accommodation 

To illustrate how this would work, 

Shashikala is living in a rental accommodation in Mumbai. She gets a basic salary of twenty five thousand rupees from her employer, a dearness allowance of two thousand rupees and a HRA of one lakh rupees. The exemption that she will receive from the income tax department is as follows – 

Particulars

Amount (in INR)

Actual HRA received

1,00,000

Rent paid (15000 p.m. * 12 months) – [10% of {(250 00p.m.*12) + (2000p.m.*12)}]

1,47,600

50% of {(25000p.m.*12) + (2000p.m.*12)}

1,62,000

Exempt HRA = lowest of 1, 2, & 3

1,00,000

Therefore, in the above example, the entire HRA received from the employer is exempt from income tax.

How can you claim deduction under Section 80GG?

To claim a deduction under Section 80GG, the least of the following will be considered – 

  • INR 5,000 per month;
  • 25% of adjusted total income;
  • Actual Rent less 10% of adjusted total Income.

Please note: the actual total income is equal to the difference between the total income and the sum of long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).

Individuals paying rent but do not receive house rent allowance are allowed to claim deduction under Section 80GG. If the individual, or his or her spouse or children owns a house property in the place of employment then the deduction cannot be claimed.

Can you claim HRA while living with your parents?

HRA cannot be claimed if you are living with your parents unless you enter into a rental agreement with them and transfer money to them every month. Ensure that you have documentary evidence as proof of the financial transactions regarding your tenancy in your parent’s house. 

There have been umpteen instances where the Income Tax department authority has rejected claims due to lack of adequate proof for such transactions.

FAQs

  • Where can I claim tax exemption on HRA?

This exemption must be claimed while filing the Income Tax Return. It has to be claimed by submitting requisite documents as proof. 

  • Can a self-employed person claim HRA exemption?

A self-employed individual cannot claim HRA exemption.

  •  What happens if the entire HRA is not tax-exempt?

The balance HRA which is not exempt will be paid to the employee after deducting tax at the applicable slab rates.

Conclusion with key takeaways

House rent allowance is usually a part of one’s salary and is not usually taxable. Familiarise yourself with the rules governing HRA and avail this exemption to save on the income tax that is deducted out of your gross salary. 

Use a HRA calculator to calculate the amount that has been saved by claiming this exemption. Also remember that if you are receiving HRA but are staying in your own apartment, then this exemption benefit cannot be claimed.

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