What is HRA and How HRA Exemption is Calculated?
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What is House Rent Allowance and How is HRA Exemption Calculated?

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What is House Rent Allowance and How is HRA    Exemption Calculated?

HRA or House Rent Allowance is received by many salaried people which is included in their pay. But did you know that you could get an HRA exemption from taxes if you live in a rented house? Under Section 80GG (HRA exemption section), you can claim for HRA exemption if you are salaried or self-employed. So, let’s understand what House Rent Allowance is, how you can calculate it, as well as some commonly asked questions.

What is HRA or House Rent Allowance?

House Rent Allowance is given by your employer as an allowance for your rented accommodation. You can claim this HRA exemption even if your employer does not pay you any HRA or if you are self-employed. But the catch is that you should be living in rented accommodation to exempt HRA from tax deductions. People who have a place of their own and get HRA from their employer cannot reap the benefits of claiming tax deductions under the HRA exemption section.

How is House Rent Allowance Determined?

-If you live in a metropolitan city, then your HRA is equivalent to 50% of your basic salary. In any other city, your HRA should be equal to 40% of your basic salary.

-If you do not get paid any dearness allowance or commissions, the HRA you should get is equivalent to 40% to 50%.

HRA Calculation

Your HRA can be estimated from the factors given below:

1.The actual rent paid minus 10% of your basic salary.

2. The actual amount of HRA given to you.

3.50% of your basic salary (for a metropolitan city).

The minimum figure out of these three is the HRA that you can claim for tax deductions.

HRA Calculator

HRA is a portion of a taxpayer’s wage that decreases his or her tax liability if the person lives in leased housing. Using online HRA Deduction Calculators, you can determine your HRA rebate.

( It is also possible to calculate the HRA rebate manually. You can check out the HRA calculator by income tax India website.) In this line, there should be a link attached on the word, HRA calculator.

If the employee pays more than ₹1,00,000 in rental expenses each year, they must give their landlord’s PAN number when filing tax returns. Also, if an employee pays rental expenditures but does not receive HRA as part of their salary, or if the person pays rental costs but does not have income earnings, the benefits of paying rental costs can be claimed as per Section 80GG or the HRA exemption section.

How to Calculate HRA?

Let’s take an example of a salaried individual named Ms. Seema Bhat who resides in Mumbai. She lives in a rented apartment and pays a rent of ₹10,000 which totals to ₹1.2 lakhs annually. Given below is her monthly earning:

Basic Salary Rs. 30,000
HRA Rs. 13,000
Conveyance Rs. 2000
Special Allowance Rs. 3000
Medical Rs. 1250
Leave Travel Allowance (LTA) Rs. 5000
Total Rs. 54,250

A professional tax of ₹200 and Provident Fund of ₹2000 is deducted from her salary every month. Let’s calculate Ms. Seema.’s HRA that she can claim from the salary based on the three factors we have discussed before:

Actual rent paid annually minus 10% of basic salary = (₹10,000 x 12) - ₹36,000 = ₹84,000

2.Actual HRA given by the employer annually = ₹13,000 x 12 = ₹1,56,000

3.50% of basic salary (annually) = ₹1,80,000

The least figure of the three is the HRA deduction that can be claimed for tax exemption which is ₹84,000 in Seema’s case.

Things to Keep in Mind about HRA Deductions

Here are some things you need to keep in mind about HRA tax exemptions:

1.If you are paying rent to your spouse, you cannot claim HRA tax exemption.

2.HRA exemption in income tax can be availed even if you have taken a home loan.

3.House Rent Allowance can be claimed if you stay with your parents by paying rent to them and getting a receipt.

4.Submitting PAN details of your landlord is mandatory if rent paid by you annually exceeds ₹1 lakh.

5.In the case of an NRI landlord, a TDS (Tax Deducted at Source) of 30% has to be deducted from the rent before paying it.

HRA and City Compensatory Allowance

CCA (City Compensatory Allowance) is compensation provided to employees by companies (publicly or privately) to compensate for the greater living costs in metro or Tier-1 cities. People working in Tier-2 locations may be eligible for CCA in particular instances. City Compensatory Allowance is given at the employer’s discretion. It is determined based on an employee’s pay scale and grade, and not their basic wage. As a result, it varies by city. An employee who works in Mumbai, for example, would receive a larger CCA than someone operating in Delhi.

While an employee gets House Rent Allowance (HRA) from their company to cover the costs of living in rented housing, City Compensatory Allowance (CCA) is provided to compensate for the high housing costs in a metropolis or Tier-1 city. A person might claim up to ₹1,00,000 as tax exemption in the case of HRA, whereas for CCA, the allowance is fully taxable.

FAQs on HRA

1. What is an HRA calculator?

An HRA calculator is an online tool that you can use to calculate your HRA that can be tax exempted. The calculator asks for your salary details to help calculate the amount that can be claimed for a tax deduction.

2. What documents are required to be submitted for HRA tax exemption?

You have to submit your rent receipt to claim tax exemption. But there are other additional documents you need to keep handy to submit as proof, such as lease and license agreement, water bill, electricity bill, a letter sent to intimate the cooperative society about the tenancy, etc.

3. Can I avail HRA tax benefit if my landlord doesn’t give me his PAN details?

Yes, you can claim HRA tax deductions without the landlord’s PAN details but you need to keep a record of other documents like lease and license agreement, water bill, letter intimating the society of occupancy, and electricity bill in case of an enquiry. Also, you should make sure you pay your rent through banking channels for proof.

4. Can both spouses claim HRA tax benefits individually?

Yes, both you and your spouse can claim HRA exemptions individually if both of you pay rent. You can do this by getting separate rent receipts from the landlord. Make sure there is no duplication of rent to avoid tax being deducted twice from the landlord’s income.

5. How can I claim HRA which is not accounted for by my employer?

If your employer has not considered the HRA leading to an increase in the taxable income, you can claim it while filing your Income Tax Returns (ITR). This will allow you to get a refund of the excess amount of tax deducted from your salary.

6.How to claim HRA exemption if I am self-employed?

You can claim HRA exemption by filing Form 10BA which will contain the details of your rent payment. The amount you can claim as a self-employed person is the minimum value of the following:

Rent paid more than 10% of the total Income.

25% of the total Income.

₹5,000 per month.

7. What is HRA and DA?

HRA or house rent allowance is paid to the employee by the employer to cover the cost of accommodation. DA or dearness allowance is paid to public sector employees by the government to cover the costs of inflation.

8. When can I claim tax exemption on house rent allowance?

You can claim HRA tax exemption if

  • You are a salaried individual
  • You have HRA as part of your salary
  • You stay in a rented accommodation

9. How can I claim HRA exemption?

You can claim HRA exemption on the lowest of the three:

The amount of HRA your employer pays you.

If you live in a metro city, 50% of your salary is eligible for HRA deduction. If you live in a non-metro city, 40% of your salary is eligible for HRA deduction.

10% of your basic pay minus the total rent you pay.

You can either submit your rent receipts to the employer or to the government at the time of filing your income tax return (ITR).

10What is the tax liability in case my entire HRA is not tax-exempt?

The remaining portion of your HRA which is not tax-exempt will be taxed as per the prevailing tax rates.

11. HRA comes under which section of income tax?

HRA comes under Section 10 (13A) of the Income Tax Act of 1961.

12.How to claim HRA in your income tax return (ITR)?

Your form-16 will show the HRA tax-exempt amount. You can copy this and put it on the ‘Salary as per Section 17’ in your ITR-1 form. The portion that is exempt from taxation should be added to ‘Allowances to the extent exempt under Section 10.

13.How to claim HRA if not mentioned in form-16?

You can claim a deduction under Section 80GG. This usually happens if your employer does not include a separate component of HRA in your salary.

14.How to save HRA?

If you are staying with your parents and their income is low and does not fall in the taxable income slab, you can pay them the rent. This way, you will be able to claim HRA, and they will not have to pay tax either.

If you have a home loan for your own house but stay in a

rented house, you can claim deduction on the principal amount payable under Section 80C and the interest paid under Section 24. In this case, you can claim HRA as well as tax

benefits on the home loan.

15.What is an HRA certificate?

If you are a government employee renting an accommodation instead of living in a government-provided house, you will receive an HRA certificate.

16.How to submit HRA proof for ITR?

You need to submit your rent receipts directly to the employer. If your annual rent is more than ₹1 lakh, you will also need to submit your landlord’s PAN.

17.How much HRA can be claimed without proof?

You need to submit:

  • The rent receipts if your rent is lower than ₹1 lakh.
  • The landlord’s PAN if the rent is more than ₹1 lakh.

18. What happens if HRA is not claimed?

You can submit a revised ITR before the assessment year is over.

19.What is the maximum limit for HRA?

You can claim a deduction up to the amount of HRA component offered by your employer.

20.Can I claim both 80GG and HRA?

Tax deductions under Section 80GG are only available if you do not get HRA as part of your salary component.

- A Consumer Education Initiative series by Kotak Life

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