Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
- Guaranteed@ Income Benefit for upto 25 years
- Flexibility to choose income period
- Premium break for females on child birth or any listed specific illnesses
- Life cover for the premium payment period
- Enhance your life cover with rider offerings
ARN. No. KLI/23-24/E-BB/1201
Features
- Increasing Life Cover*
- Guaranteed^ Maturity Benefits
- Enhanced Protection Through Riders
- Tax Benefits
- Dual Benefits: Guaranteed^Maturity + Death benefits
Ref. No. KLI/22-23/E-BB/999
What is HRA (House Rent Allowance), and How is HRA Exemption Calculated?
House Rent Allowance (HRA) is a salary component provided by employers to cover an employee's rental housing expenses.
- 586,094 Views | Updated on: Jul 22, 2024
Are you aware of the financial benefits of paying house rent that you can avail yourself of as a salaried employee? If not, it is time to expand your understanding of HRA (House Rent Allowance). Delve deeper into HRA exemption and HRA calculation to save taxes through this excellent tax exemption scheme introduced by the government.
HRA, or House Rent Allowance, is received by many salaried people and 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, you can claim an exemption if you are salaried or self-employed.
What is HRA (House Rent Allowance)?
An employer gives a house rent allowance as a subsidy for an employee’s rented accommodation. You can still use this exemption even if you work for yourself or your company does not provide an HRA. But the catch is that the house rent allowance is exempted from tax only if you live in a rented house.
So, people with a place of their own who get HRA from their employer cannot reap the benefits of claiming tax deductions under the HRA exemption section. Let us take a look at HRA for self-employed and salaried individuals:
HRA for Self-employed Individuals
There is no HRA exemption provision for self-employed individuals. However, they can claim a deduction under Section 80GG of the Income Tax Act (ITA). Salaried individuals who pay rent but do not receive HRA from their employer can also utilize this provision.
HRA for Salaried Individuals
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.
Calculating HRA and HRA Tax Exemption
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:
Actual HRA Received
This is the amount of HRA the employee receives from their employer.
Rent Paid
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.
Salary
The employee’s salary includes basic salary, dearness allowance (if any), and other fixed pay components.
Location of Residence
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.
Documents Required for HRA Exemption Claim
Proper documentation is essential when claiming a House Rent Allowance (HRA) exemption to ensure compliance with tax regulations and maximize your tax benefits.
- Rent Receipts
- Rental Agreement or Lease Deed
- Letter from Landlord
- Rent Payment Mode Proof
- Form 12BB
- Salary Slip
Conditions for Claiming HRA Exemption
Claiming 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.
Residential Accommodation
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.
Actual Payment of Rent
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.
HRA Component in Salary
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.
Least of the Following Rule
The amount of HRA exemption cannot exceed the least of the following three factors:
- Actual HRA received from the employer.
- Rent paid minus 10% of salary (basic salary plus dearness allowance) or
- 50% of salary (for employees living in metro cities) or 40% of salary (for employees living in non-metro cities).
- Condition: Taxpayers must calculate HRA exemption using the least of the above three factors to ensure compliance with tax regulations.
Proof of Rent Payment
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.
Did You Know?
To claim an HRA exemption, the employee must submit rent receipts or other supporting documents, as the employer requires.
What if You Do not Receive an HRA?
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:
- Be an employee
- Receive HRA in salary
- Not own a house in the city where you work
- Pay rent for a house in the city where you work
To claim a deduction on home loan interest, you must:
- Have taken a home loan
- Be repaying the home loan
- Own a house
- The amount of home loan interest you can claim is the actual interest you have paid on the home loan.
You can claim HRA and a deduction on home loan interest in your income tax return. You must provide proof of your salary, rent, and home loan payments.
Can I Claim HRA and Deduction on Home Loan Interest?
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:
- You must be a salaried individual receiving HRA as part of your salary.
- You must reside in rented accommodation in the same city where you work.
- You must have taken out a home loan for a property in your own name or jointly with your spouse.
Homeowners repaying their home loan and receiving HRA can avail themselves of both house property-related tax benefits to reduce their taxable income.
When Do You Need a Landlord’s PAN?
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.
How to Claim HRA When Living with Parents?
There are a few factors to consider to claim HRA when living with parents. Here are the points that can be followed:
Rental Agreement
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.
Rent Receipts
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.
Rent Payment Mode
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.
Ownership Proof
Ensure that your parents have proper ownership documents of their house. These documents could include property deeds, tax receipts, or other relevant documents.
Separate Living Space
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.
Employer’s Requirements
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.
Submitting Documents
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.
How to Claim Deduction Under Section 80GG?
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:
Eligibility Criteria
- You must be an individual taxpayer, including self-employed individuals and salaried employees without HRA.
- You, your spouse, or your minor child should not own any residential accommodation in the location where you currently reside or perform your duties.
Deduction Amount
- The deduction amount under Section 80GG is the least of rent paid minus 10% of your total income or ₹5,000 per month or 25% of your total income.
- The total income referred to above is calculated after deducting other allowable deductions under various sections of the ITA.
Documentation and Evidence
To claim the deduction, you need to submit Form 10BA along with your income tax return (ITR). Maintain the following documents as evidence:
- Rent Receipts: Obtain rent receipts from your landlord for the rent paid during the financial year.
- Rental Agreement: Keep a copy of the rental agreement/lease agreement as proof of the tenancy.
- Declaration: Create a declaration in Form 10BA stating that you fulfill all the conditions under Section 80GG.
Filing the Income Tax Return
- 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.
- File your ITR within the due date specified by the Income Tax Department.
It’s important to note that you cannot claim the deduction under Section 80GG if you live with your parents. The provision applies only if you or your spouse or minor child do not own any residential accommodation at your employment or business.
Things to Consider When Making HRA Deductions
Here are some things you need to keep in mind about HRA tax exemptions:
- You cannot claim an HRA tax exemption if you pay your spouse’s rent.
- HRA exemption in income tax can be availed even if you have taken a home loan.
- HRA can be claimed if you stay with your parents by paying rent to them and getting a receipt.
- Submitting the PAN details of your landlord is mandatory if your pay annually exceeds ₹1 lakh.
- In the case of an NRI landlord, a TDS (Tax Deducted at Source) of 30% must be deducted from the rent before payment.
Key Takeaways
- HRA is a tax exemption that can be claimed by salaried individuals who live in rented accommodation.
- The amount of HRA exemption is calculated based on the actual rent paid, the basic salary, and the location of the residence.
- Self-employed individuals can also claim HRA exemption under Section 80GG of the Income Tax Act.
- You must submit rent receipts or other supporting documents to claim an exemption.
Conclusion
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.
FAQ on What is HRA
1
When can I claim tax exemption on the HRA?
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
I am a self-employed individual. Can I claim an HRA exemption?
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
What is the tax liability if your entire HRA is not tax-exempt?
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
Who can claim HRA exemption?
HRA exemption can be claimed by employees who meet the following conditions:
- They have not received any house rent allowance (HRA) from their employer.
- They do not own a house and pay rent in the city where they work.
5
Which section of the income tax does HRA come under?
HRA comes under Section 10(13) of the Income Tax Act.
6
What is DA?
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
How to claim HRA if not cited in Form 16?
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
How to submit HRA proof for ITR?
You can submit HRA proof for ITR by attaching the rent receipt, rental agreement, and employer’s HRA certificate to your ITR:
9
What happens if evidence for HRA exemption is not submitted or HRA deduction is not claimed in ITR?
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
Can I claim both 80GG and HRA?
You can claim 80GG and HRA, but only in lower amounts.
11
When Do You Need a Landlord’s PAN?
You need a landlord’s PAN if the annual rent exceeds ₹1 lakh.
12
How much HRA exemption can you claim?
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
What is an HRA certificate?
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
What is the maximum limit for HRA?
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.
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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.
- Guaranteed@ Income Benefit for upto 25 years
- Flexibility to choose income period
- Premium break for females on child birth or any listed specific illnesses
- Life cover for the premium payment period
- Enhance your life cover with rider offerings
ARN. No. KLI/23-24/E-BB/1201
Features
- Increasing Life Cover*
- Guaranteed^ Maturity Benefits
- Enhanced Protection Through Riders
- Tax Benefits
- Dual Benefits: Guaranteed^Maturity + Death benefits
Ref. No. KLI/22-23/E-BB/999
