How to use your House Rent Allowance to claim a tax exemption

 

HRA or House Rent Allowance is paid by an employer to an employee with the purpose of meeting the cost of renting a home.  Under Section 10 (13A) of the Income Tax Act, a salaried employee can claim benefits.  Those who are self employed are also eligible for tax deductions under Section 80 GG of the Income Tax Act. Here’s what you need to keep in mind while filling the HRA column on your tax sheet.

 

Who can claim HRA?  

 

#If you live in a rented house and pay money to a landlord

 

#If you are paying rent to your spouse or parents

 

#If you took a home loan for a home in one city but reside in another, you will be entitled to:

 

Tax benefit on principal repayment under Section 80C

 

Tax benefit on interest payment under Section 24

 

HRA benefit

 

#Or, even if the home is in the same city but you are renting a home, you can still claim the benefits

 

#If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above.  However, in this case, the rent you receive would be considered as your taxable income.

 

Who cannot claim HRA?

 

If your rent paid is lower than 10 per cent of your salary and also if you are living in your own house you cannot claim for HRA exemption. Also if your company is paying for your accommodation ‘lease accommodation’.

 

Documents needed to prove the claim

 

 

Copy/Original of rent receipts as proof of rent paid. In case your rent paid for the financial year exceeds ₹1 lakh, then you also need to furnish the PAN no of your landlord. Keep in mind this is mandatory.

 

How is HRA calculated?

 

The least of these three values are calculated for exemption:

 

#The rent allowance that your employer provides you as a part of your salary

 

#The actual rent that you pay from which 10 per cent of your basic pay is deducted.

 

#50 per cent of your basic salary (if you are living in a metro) 40 per cent of your basic salary (if you reside in a non metro)

 

#The remaining amount that does not come under taxation is taxable

 

Example :

HRA per month = ₹15,000

Basic monthly salary = ₹25,000

Dearness Allowance = Nil

Monthly rent = ₹13,000

Rental accommodation is in Mumbai (metro)

 

Exemption

 

Actual amount of HRA = ₹15,000

 

50% of salary = 50% x (25,000 + 0) = ₹12,500

 

Actual rent paid - 10% of salary = ₹13,000 - [10% of (25,000 + 0)] = 13,000 – 2,500= ₹10,500

 

₹10,500 being the least of the three amounts will be the exemption from HRA. The balance HRA of ₹4,500 (15,000- 10,500) is taxable.