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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
House Rent Allowance is a salary component provided by employers to help employees cover the cost of renting a home.
HRA, full form House Rent Allowance, is an essential component of a salaried individual’s compensation package. Provided by employers, HRA is specifically designed to assist employees in covering the costs associated with renting a home. This allowance is particularly beneficial for those living in rented accommodations, as it helps to offset the financial strain of monthly rent payments.
HRA is not only a financial benefit but also plays a strategic role in tax planning. A portion of HRA can be exempt from income tax, provided certain conditions are met, such as living in rented accommodation and paying rent. The exemption is calculated based on factors like the actual rent paid, HRA received, and the employee’s salary. This makes HRA a significant advantage for salaried employees, enhancing their disposable income and easing the burden of rent, ultimately contributing to better financial management.
To qualify for the tax benefits associated with House Rent Allowance (HRA), you need to meet a few key criteria:
However, it’s important to note that self-employed individuals do not qualify for HRA tax benefits. This is because HRA is specifically a benefit provided to salaried employees. If you’re self-employed, you won’t be able to claim HRA exemptions. Instead, you might be eligible for alternative deductions under provisions like Section 80GG if you’re paying rent and meet certain conditions.
While self-employed individuals and salaried employees without HRA don’t get the straightforward benefits of HRA exemption, Section 80GG provides a valuable alternative. Understanding how this section works can help you make the most of the tax benefits available to you. Whether you’re self-employed or simply not receiving HRA, don’t miss out on the opportunity to lower your tax liability by claiming this deduction.
Understanding HRA and how it works can make a big difference in your tax planning. It’s one of the easiest ways to reduce your taxable income if you’re living in a rented house. Make sure to keep all your documents in order, so you can claim the maximum benefit without any hassle. And if you’re ever in doubt, a quick chat with your HR department or a tax consultant can help clear things up.
For salaried individuals, HRA can be a significant component of their salary structure. The HRA amount is generally determined based on the employee’s basic salary, the actual rent paid, and the city where they reside. The amount of HRA received by an employee may vary depending on the company’s policies and the employee’s salary structure.
HRA plays an important part in managing salaried individuals’ monthly expenses. Calculating HRA is necessary to determine how you will utilize your salary for other remaining monthly expenditures. Using online HRA calculation in salary, you can determine your HRA rebate.
Tax exemption from HRA is calculated using the following factors:
This is the amount of HRA the employee receives from their employer.
The actual rent the employee pays for the accommodation they are residing in. It includes the basic rent and other additional charges like maintenance but excludes charges like electricity, water, or other amenities.
The employee’s salary includes basic salary, dearness allowance (if any), and other fixed pay components.
HRA is related to the city or town where the employee’s rented accommodation is located. Different cities are categorized into different classes (e.g., metros, non-metros) with different HRA exemption limits.
Proper documentation is essential when claiming a House Rent Allowance (HRA) exemption to ensure compliance with tax regulations and maximize your tax benefits.
Claiming an HRA exemption comes with certain conditions taxpayers must fulfill to avail of this benefit. Here’s a detailed guide on the conditions for claiming HRA exemption.
HRA exemption is available only if the taxpayer resides in a rented house. Those living in their own house or with family members are not eligible.
Rent payments must be made to the landlord by the taxpayer during the financial year for which the exemption is claimed. Payments should be supported by proper documentation such as rent receipts or bank statements.
The HRA component must be specifically mentioned in the salary slip provided by the employer. Taxpayers receiving no HRA component are not eligible for HRA exemption.
The amount of HRA exemption cannot exceed the least of the following three factors:
Rent receipts, rental agreements, or bank statements showing rent payments made to the landlord’s account are acceptable forms of proof. These documents should be maintained for audit purposes.
To claim an HRA exemption, the employee must submit rent receipts or other supporting documents, as the employer requires.
Self-employed people who do not receive an HRA component can claim an HRA exemption under Section 80GG of the ITA. This option is also available to salaried individuals paying rent if their employer does not provide an HRA.
Hence, when computing HRA exemption, ensure you can claim the deduction under Section 80GG or Section 10(13A) of the ITA.
HRA provides a tax benefit by allowing individuals to claim exemptions on the rent paid for their accommodation. You can claim HRA and deduction on home loan interest, subject to certain conditions. To claim HRA on a home loan, you must:
To claim a deduction on home loan interest, you must:
Yes, under specific conditions, you can claim both HRA (House Rent Allowance) and deductions on home loan interest in India, which can benefit taxpayers paying rent and having a home loan.
Conditions for claiming both HRA and home loan interest deduction:
If your annual rent exceeds ₹1 lakh, you must provide your employer with your landlord’s PAN. If your landlord doesn’t have a PAN, submit a written declaration from them that includes their name and address.
Including the landlord’s PAN card details for HRA exemption claims when the total rent paid is more than ₹1 lakh per year helps the government verify that the rent amount stated in the receipts is accurate.
There are a few factors to consider to claim HRA when living with parents. Here are the points that can be followed:
Prepare a rental agreement between you and your parents for the portion of the house you occupy. This agreement should mention the amount of rent you are paying to your parents.
Ensure your parents provide you with receipts for the rent you pay. The receipts should contain details such as the amount paid, the duration it is paid, your parents’ name, address, and signature.
Pay the rent to your parents through a bank transaction or a cheque rather than in cash. It will help you provide evidence of the rent payment if required.
Ensure that your parents have proper ownership documents of their house. These documents could include property deeds, tax receipts, or other relevant documents.
If you occupy a specific portion of the house, ensure it can be identified as a separate living space. It should have a separate entrance, a distinct kitchen area, and facilities that can be attributed to your portion of the house.
Check with your employer about their requirements for claiming HRA when living with parents. Some employers may have additional forms or documentation that they require.
When filing your income tax return, include the rental agreement, rent receipts, and other supporting documents per your employer’s requirements. Keep the original documents safely with you.
To claim a deduction under Section 80GG of the ITA, 1961 in India, which applies to individuals who do not receive an HRA, you must fulfill certain conditions and follow the prescribed guidelines. Here’s a step-by-step process to claim the deduction:
Include the deduction amount calculated in Step 2 in the relevant section of your income tax return form (ITR).
Attach the necessary documents, such as Form 10BA and rent receipts, as supporting evidence.
Here are some things you need to keep in mind about HRA tax exemptions:
Availing of tax exemption has been made easy with different government schemes. HRA plays a vital role in the lives of many salaried individuals, providing financial relief when it comes to housing expenses. This tax-saving benefit can substantially impact your overall income tax liability. By understanding the fundamentals of HRA and the factors that influence its exemption calculation, you can make informed decisions about your housing arrangements and maximize your benefits. Remember, a thorough understanding of HRA empowers you to make the most of this allowance and secure a more financially sound future.
1
If you are an employee and do not own a house in the city where you work, you can claim a tax exemption on the house rent allowance.
2
No, you cannot claim an HRA exemption if you are self-employed. However, you can claim a deduction for the rent you pay for your residence under Section 80GG of the Income Tax Act.
3
If your entire HRA is not tax-exempt, you will be liable to pay tax on the amount that is not exempt. The tax rate will depend on your income slab.
4
HRA exemption can be claimed by employees who meet the following conditions:
5
HRA comes under Section 10(13) of the Income Tax Act.
6
DA stands for Dearness Allowance. It is a cost-of-living allowance paid to employees to help them cover the rising cost of living.
7
Even if HRA is not mentioned in Form 16, you can still claim it by submitting a rent receipt and a copy of your rental agreement to your employer.
8
You can submit HRA proof for ITR by attaching the rent receipt, rental agreement, and employer’s HRA certificate to your ITR
9
If you do not submit proof for HRA exemption to your employer or if you do not claim an HRA deduction in ITR, you will be liable to pay tax on the entire amount of HRA that you receive.
10
You can claim 80GG and HRA, but only in lower amounts.
11
You need a landlord’s PAN if the annual rent exceeds ₹1 lakh.
12
HRA exemption is the minimum of the following: actual HRA received, 50% of salary (for metro cities) or 40% (for non-metro cities), and rent paid minus 10% of salary.
13
An HRA certificate is a document provided by your employer that details the House Rent Allowance received and the rent paid, used for claiming HRA exemption.
14
There is no fixed maximum limit for HRA; it is calculated based on your salary, the actual rent paid, and the city of residence. The exemption is subject to the rules set by the Income Tax Department.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
