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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
House Rent Allowance (HRA) is an important part of a salaried employee’s income. It is provided by employers to assist employees in covering their rent expenses. If you are a salaried individual and pay rent, understanding what is HRA can also help you avail of tax benefits. The exemption amount depends on factors like basic salary, actual rent paid, and city of residence. Instead of manually doing complex calculations, you can use the Kotak HRA Calculator to determine your HRA deduction easily.
HRA full form, House Rent Allowance, is a common benefit that is included in a salaried individual’s compensation package. Employees can use the amount to cover the costs of renting a home. It helps offset the financial strain of monthly rent payments.
HRA is not only a financial benefit but also plays a strategic role in tax planning as per Section 10(13A) of the Income Tax Act. If you live in a rented accommodation and pay rent, you can claim a portion of HRA as a tax exemption. The exemption amount will depend on factors like your salary, rent paid, and the city you live in.
To qualify for the benefits associated with HRA in income tax, 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 tax benefits. 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 rules, 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 what is HRA meaning 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. It will help determine how you will utilize your salary for other remaining monthly expenditures. Once you know what is HRA, you should note the following factors to claim the exemption:
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 limits.
When calculating your tax liability, you must compare the following figures and take the lowest one as the HRA deduction amount:
Here, the salary amount will include your basic salary and dearness allowance.
We can understand the above rule with an example. Suppose you live in a rented house in Delhi and receive HRA as part of your salary as per the following table:
Basic Salary + Dearness Allowance | ₹12,00,000 |
HRA Received | ₹1,00,000 |
Rent Paid | ₹2,00,000 |
The exemption amount will be the least of the following:
HRA Received | ₹1,00,000 |
Rent Paid - 10% of Salary | (₹2,00,000 - 10% of ₹12,00,000) =₹80,000 |
50% of Salary |
(50% of ₹12,00,000) =₹6,00,000 |
Lowest of them all | ₹80,000 |
So, you can claim ₹80,000 as an HRA tax exemption. The balance HRA of ₹20,000 (₹1,00,000 - ₹80,000) will be taxed under the head salary.
The above calculation can be a bit overwhelming. You can use our free online HRA calculator to make the process easier. By entering key details like salary components, rent paid, and location, you can find out how much of your HRA is eligible for exemption. Try it now and plan your tax savings better in just a few clicks.
Proper documentation is essential when claiming an HRA tax exemption to ensure compliance with tax regulations and maximize your tax benefits.
Claiming an HRA tax exemption comes with certain conditions taxpayers must fulfill to avail of this benefit. Here’s a detailed guide on the conditions for claiming HRA.
HRA tax 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 tax exemption.
The amount of HRA tax 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.
Self-employed people who do not receive an HRA component can claim an HRA tax 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 rules 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 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 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:
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 what is 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 HRA.
2
No, you cannot claim an HRA benefit 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 tax 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 tax 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 tax 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 HRA received and the rent paid, used for claiming HRA tax 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.
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.
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