HRA, or House Rent Allowance, is a sum of money that businesses give to their staff to help them pay their rent. Read on to know how to claim HRA while filing ITR.
Full Form
HRA – House Rent Allowance
One of the most significant benefits included in a salary slip for those receiving a salary is the HRA for Claim HRA in ITR. If you receive a salary and rent your home, you can use the HRA to partially or fully Income Tax Return obligation. Your expenses for rental housing will be covered by the same amount. The HRA is fully taxable, though, if you don’t own your home. Know more about Claim HRA in ITR on this blog.
At the time that your income tax returns are submitted, you can request an HRA exemption in ITR and Claim HRA. You can only do this if your employer does not submit an HRA claim on your behalf. Vakilsearch’s HRA calculator can be used to determine your HRA amount by Claim HRA in ITR . If you have a legal issue, our experienced legal professionals at Vakilsearch can assist you.
Explanation of the House Rent Allowance (HRA)
Salary individuals who live in rented housing may be eligible to claim HRA in ITR the House Rent Allowance (HRA). This allowance provides for expenses associated with rented housing. This allowance is fully taxable if you do not live in rented housing.
How to Claim HRA while filing ITR: Overview
HRA can significantly reduce an individual’s tax liability. The following are some reasons why you should Claim HRA in ITR:
- Reduces taxable income
HRAs are tax-free up to a certain limit, determined by the individual’s salary, amount of rent paid, and city of residence. Deducting the HRA amount an employee receives from the total taxable income is possible, thereby reducing the tax liability.
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- Increase disposable income
If you claim HRA in ITR, you will have a greater disposable income because the tax you save can be used for other purposes such as saving or investing.
- Compliance with tax laws
HRA is a legal entitlement, and complying with the tax laws can help you avoid penalties or legal repercussions.
- Financial planning
Additionally, Claim HRA in ITR can be part of a person’s financial planning, as it can reduce their tax liability and increase their disposable income, enabling them to plan their finances better.
Eligibility for Claim HRA in ITR
- Employment status: Only salaried employees are eligible to claim HRA. Self-employed individuals and those receiving income from other sources are not eligible for HRA.
- Rent paid: To claim HRA in ITR, an employee must pay rent for a house. The employee must be living in a rented accommodation and paying rent. The rent paid must be higher than 10% of the basic salary for the employee to be eligible to claim HRA.
- Residential status: An individual who is a resident of India is eligible to claim HRA in ITR. Non-residents are not eligible for HRA.
- City of residence: The HRA exemption in ITR is calculated based on the city of residence. The employee’s place of work does not determine the eligibility for HRA. The government has classified cities into three categories based on their population, and different HRA exemptions apply for each category.
- Salary structure: HRA is calculated based on the employee’s basic salary. The HRA exemption in ITR is the least of the following: the actual HRA received, 50% of the basic salary for those living in metro cities or 40% for those living in non-metro cities, and the rent paid minus 10% of the basic salary.
Who is Eligible to Claim HRA?
- Salaried employees are eligible to claim HRA in ITR. It is not available to self-employed individuals, freelancers, or those receiving income from other sources.
- An individual must live in rented accommodation and pay rent for the same. These benefits are unavailable to individuals living there or their family members’ homes.
- To be eligible for HRA, the employee must pay rent to the landlord. Employees who do not pay or pay rent to a family member are not eligible for HRA.
- The employee’s rent must exceed 10% of their basic salary. HRA is unavailable if the rent paid is less than 10% of the employee’s basic salary.
- A resident of India is eligible to claim HRA in ITR. HRA is not available to non-residents.
- HRA amounts are calculated based on the employee’s salary structure. To qualify for HRA exemption, the employee must receive the least of the following: actual HRA received, 50% of the basic salary in metro areas, 40% of the basic salary in non-metro areas, or rent paid less than 10% of the basic salary.
Explanation of the conditions that must be met to claim HRA
- Proof of rent payment: To claim HRA, the employee must provide proof of rent payment to the employer. The employee must provide rent receipts or copies of the rent agreement as proof of rent payment.
- Living in rented accommodation: The employee must live in a rented accommodation to claim HRA in ITR. The rented accommodation must be used for residential purposes only.
- Rent amount: The rent paid by the employee must be higher than 10% of their basic salary to be eligible for HRA. If the rent is less than 10% of the basic salary, the employee will not be eligible to claim HRA in ITR.
- City of residence: The HRA exemption in ITR is calculated based on the city of residence. The government has classified cities into three categories based on their population, and different HRA exemptions apply for each category.
- Salary structure: The HRA amount that can be claimed is calculated based on the employee’s salary structure, and the HRA exemption in ITR is the least of the following: actual HRA received, 50% of the basic salary for those living in metro cities or 40% of the basic salary for those living in non-metro cities, and rent paid minus 10% of basic salary.
- Residential status: An individual who is a resident of India is eligible to claim HRA in ITR. Non-residents are not eligible for HRA.
Claim HRA in ITR: Calculating HRA
To calculate HRA, you need to determine the actual HRA received from the employer during the financial year. Then, it would help if you determined the least of the following:
- Actual HRA received from the employer
- Rent paid minus 10% of basic salary
- 50% of basic salary for metro cities or 40% of basic salary for non-metro cities, as applicable
Next, you must determine the taxable HRA amount by subtracting the least of the above from the actual HRA received. Finally, it would help if you determined the HRA exemption in ITR by subtracting the taxable HRA amount from the least of the above.
The formula to calculate HRA is
HRA exemption = Actual HRA received – Least of (a, b, c) and Taxable HRA amount = Actual HRA received – Least of (a, b, c) or 0 (whichever is lower).
Different Methods Used to Calculate HRA:
Different methods are used to calculate HRA, such as the actual rent paid method, the actual HRA received method, and the metro/non-metro method. The actual rent paid method considers the actual rent paid by the employee, while the actual HRA received method considers the actual HRA received from the employer. The metro/non-metro method considers the employee’s location and the basic salary to determine the HRA amount.
Tips for Calculating HRA Accurately:
Claim HRA in ITR – To calculate HRA accurately, you should keep the following tips in mind:
- Keep accurate records of rent paid and HRA received from the employer.
- Understand the eligibility criteria and conditions for claiming HRA.
- Know the different methods used to calculate HRA and choose the method that is most beneficial for you.
- Use the formula and steps to calculate HRA accurately.
- Consult a tax professional if you have doubts or questions regarding HRA calculation or taxation.
Documenting HRA
To claim HRA in ITR, you need to have the following documents:
- Rent receipts: You must provide rent receipts to your employer as proof of the rent paid. The rent receipts should include the landlord’s name, the address of the rented accommodation, the period for which the rent has been paid, and the amount of rent paid.
- Rent agreement: You may also need to provide a rent agreement as proof of the rented accommodation. The rent agreement should be on stamp paper and include the name of the landlord, the address of the rented accommodation, the period of the rental agreement, the rent amount, and the signatures of both the landlord and the tenant.
- Salary slips: Your salary slip should mention the amount of HRA received from your employer.
- PAN card: You may need to provide your PAN card details to your employer to claim HRA.
- Form 12BB: You need to submit Form 12BB to your employer to claim HRA. Form 12BB is a declaration form that includes details of rent paid, name and address of the landlord, and PAN of the landlord, if available.
How to Obtain These Documents to Claim HRA in ITR?
- Rent receipts: You can obtain rent receipts from your landlord. Make sure the receipts include all the necessary details.
- Rent agreement: You can obtain a rent agreement from your landlord. You can also draft a rent agreement on stamp paper if your landlord does not have one.
- Salary slips: You can obtain your salary slips from your employer.
- PAN card: You can apply for a PAN card online or through any authorized PAN service center.
- Form 12BB: You can obtain Form 12BB from your employer or download it from the Income Tax Department website. Fill in the details and submit it to your employer.
Tips for Keeping Accurate Records of HRA:
- Keep all rent receipts and rent agreements in a safe place.
- Maintain a record of the rent paid every month.
- Keep a copy of Form 12BB submitted to your employer.
- Keep a copy of your salary slips that mention the HRA received.
HRA Claim in ITR:
To claim HRA in ITR, you need to follow these steps:
- Calculate your HRA exemption in ITR using the formula mentioned earlier.
- Calculate your taxable salary by subtracting the exemptions and deductions from your gross salary.
- File your income tax return using the relevant ITR form.
- Fill in the HRA details in the tax return form. You need to enter the actual HRA received, the least of (a, b, c) as mentioned earlier, and the HRA exemption amount calculated.
- Attach the necessary documents, such as rent receipts, rent agreement, and Form 12BB.
ITR Forms That Allow You to Claim HRA:
The following ITR forms allow you to claim HRA in ITR:
- ITR 1: This form is for individuals with income up to ₹50 lakhs and one house property.
- ITR 2: This form is for individuals with income from more than one house property and capital gains.
- ITR 3: This form is for individuals with income from business or profession.
- ITR 4: This form is for individuals with income from a presumptive business or profession.
- ITR 5: This form is for partnership firms, LLPs, and AOPs.
Tips for Accurately Filling Out the ITR Forms to Claim HRA:
- Double-check all calculations and ensure that the correct HRA exemption amount is entered.
- Verify that all necessary documents, such as rent receipts and agreements, are attached to the ITR form.
- Ensure that the correct ITR form is used based on your income and source of income.
- Fill in all the relevant details in the ITR form accurately.
Who Can Claim HRA Exemption in ITR?
Salaried people who receive housing rent allowance as part of their income are eligible for HRA exemption in ITR as long as they make a contribution toward their rent by claim HRA in ITR. HRA exemption decreases the taxable compensation in full or in part.
The employer provides a tax projection statement at the beginning of each fiscal year that includes the HRA amount. Your employer withholds the HRA from your pay. The deduction is shown in Part B of Form 16 produced by your employer when you file your ITR (Income Tax Returns). You can submit a revised return before the end of the assessment year if you do not submit your HRA claim with your Income Tax Return. or claim HRA in ITR
Eligibility Criteria to Claim HRA in ITR
You are only eligible for an HRA exemption in ITR if:
- You are a salaried employee.
- You have an HRA component in your salary structure.
- You live in a rented house.
If you pay rent for any residential property that you occupy even if your employer does not offer HRA, you may still be eligible for a deduction under Section 80GG of the Indian Income Tax Act. To qualify for this exemption, you must, however, meet certain requirements, such as:
- Either you work for yourself or as an employee.
- In the fiscal year for which you are applying for an 80GG exemption, you have not taken any HRA deductions at all.
- You do not own residential property where you presently reside, do your business, or hold employment. Neither does your spouse, your minor kid, or HUF (where you are a member).
You cannot use the benefit of an accommodation as self-occupied if you own residential property somewhere other than the location stated above. In this situation, you would be able to claim the 80GG deduction because the other accommodation would be deemed to be rented out and by Claim HRA in ITR
What Is the HRA Exemption Limit That Is Currently Available?
The HRA exemption limit is set at a minimum of:
- Actual House Rent Allowances received
- 40% for non-metro people and 50% of the minimum income, including the dearness allowance, for those who live in major cities.
- Actual housing costs, including dearness allowance, are less than 10% of the basic pay.
The least of the following will be taken into account as the limit for HRA exemption in Income Tax Return if you are submitting a claim deduction under Section 80GG.
- ₹5,000 per month
- 25% of total adjusted income
- Actual rent paid less than 10% of adjusted total income, which is the total income less any 80C to 80U deductions, long-term capital gains, short-term capital gains, and income under Section 115A or 115D.
How to Claim HRA in ITR?
Here we Can Claim HRA in ITR, In accordance with Section 80C of the Income Tax Act of 1961, insurance premiums are not subject to taxation. In addition, Section 10 exempts any reward obtained under the savings insurance policy from taxes (10D).
Usually, to qualify for an HRA exemption on Form 16 that the employer creates, your employer will ask you to submit your house rent receipts in the final quarter of the fiscal year. But if you don’t give your employer your rent receipts, they’ll charge TDS (Tax Deducted at Source) instead of taking into account the claim hra in itr that’s shown on your pay stub. The sum of the exempt HRA will need to be manually calculated.
If Rent Receipts Are Provided to the Employer:
Your company will review the situation and lower the tax withholding if you provide them with your house rent receipts and other supporting documentation. Form 16 and your tax return will both reflect your exemption. It’s simple and practical to submit an HRA through your employer and also Claim HRA in ITR.
However, to qualify for the HRA tax exemption, you must provide your employer with information about your landlord’s PAN card.
Additionally, filing for HRA tax exemption has never been easier thanks to the synchronisation of your Form 16 and ITR-1 form, which pre-fills the Income Tax Return form with the appropriate amount when you submit your claim online.
If the Employer Is Not Provided With the Rent Receipts:
You can also Claim HRA in ITR while filing, if you were unable to provide your employer with your rent receipts. In this scenario, the employer would not have included the HRA exemption in the taxable wage and would have instead increased the TDS deduction.
You will receive a refund for the extra TDS deduction made when you Claim HRA in ITR deduction when filing your ITR. To make the same claim deduction from the salary, you must calculate the correct HRA exemption amount.
You can contact Vakilsearch if you need any help in the ITR filing process, and their experienced team of legal professionals will answer all of your queries.
For Example:-
- Suppose your monthly rent in Bangalore is ₹15,000 (or a similar amount).
- You paid too much TDS because you failed to give the employer your rent receipts.
- Your base monthly pay is ₹70,000, plus ₹20,000 for health reimbursement allowance.
- Your HRA exemption limit in this situation will be determined as follows:
- Actual HRA received
- 50% of the base salary
- Over 10% of the base salary is paid in excess rent each year.
The HRA exemption amount is ₹1.2 lakh, and the remaining ₹1.2 lakh is the taxable amount. Once you are aware of the HRA claim amount, use the appropriate Income Tax Return form and submit your ITR by following these steps:
Enter your salary in Form 16 – Part B’s “Salary as per requirements specified in section 17(1)” section. Using the drop-down box, select 10(13A) to enter the HRA under “Allowances exempt u/s 10” in ITR 1).
Conclusion
If you follow these HRA tax exemption requirements, you can easily Claim HRA in ITR while filing. A great way to reduce your annual taxable income is to request an HRA exemption.
You can also benefit from investments made in life insurance plans, including term insurance, ULIPs, retirement annuity plans, savings insurance, etc.
Since submitting income tax returns can occasionally be a hassle, particularly if you’re a working professional, Vakilsearch can help you and make this procedure simple.
FAQ’S
What is HRA?
HRA stands for House Rent Allowance, a component of an employee's salary provided by the employer to cover the rent expenses of the employee's accommodation.
Who is eligible to Claim HRA in ITR?
Any salaried employee who receives HRA as a part of their salary and pays rent for their accommodation can claim HRA in ITR.
How is HRA calculated?
HRA is calculated based on the actual amount of HRA received, the rent paid, and the location of the rented accommodation. The least of (a, b, c) is the HRA exemption amount. The formula is: Least of (a, b, c) = (a) Actual HRA received from employer (b) Rent paid - 10% of basic salary (c) 50% of basic salary for metro cities or 40% for non-metro cities
What documents are required to claim HRA in ITR?
The documents required to claim HRA in ITR include rent receipts, rent agreement, Form 12BB, and salary slips that mention the HRA received.
How do I claim HRA in ITR?
To claim HRA in ITR, you need to calculate your HRA exemption in ITR and taxable salary. Then, file your income tax return using the relevant ITR form and accurately fill in the HRA details. Attach the necessary documents to support your claim, such as rent receipts, rent agreement, and Form 12BB.
Can we claim HRA in ITR filing?
Yes, individuals who receive House Rent Allowance (HRA) can claim its exemption while filing their Income Tax Return (ITR).
Can I claim HRA without proof?
No, to claim HRA exemption, you need to provide proofs such as rent receipts or a rent agreement, depending on the amount of HRA received.
Where to show HRA in ITR Form 2?
In ITR Form 2, you can report the HRA exemption in the 'Salary' schedule under 'Allowances not exempt.'
What is the difference between ITR 1 and 2?
ITR 1 is meant for individuals with income up to ₹50 lakh from salary, one house property, and other sources, while ITR 2 is for individuals and HUFs having income from more than one house property or capital gains.
What is the ITR rule on HRA?
The Income Tax Rules allow employees to claim HRA exemption under Section 10(13A) of the Income Tax Act, subject to certain conditions.
What are the proofs of HRA?
Proofs of HRA include rent receipts, rent agreement, and any other document showing the payment of rent to the landlord.
Can I claim HRA by paying rent to parents?
Yes, you can claim HRA by paying rent to your parents, provided they own the property and show the rental income in their tax return.
What if I forgot to submit rent receipts for taxes?
If you forgot to submit rent receipts, you might lose the HRA exemption for that period. However, you can still claim it while filing your ITR, but be prepared for scrutiny if required.
Can I fill both ITR 1 and 2?
No, you should select the appropriate ITR form based on your income sources and complexity of financial transactions.
Can I file ITR 2 instead of ITR 1?
Yes, you can file ITR 2 instead of ITR 1 if your income sources include more than one house property or capital gains.
Who should use ITR 2?
ITR 2 is applicable to individuals and HUFs with income from sources other than business or profession, such as capital gains, more than one house property, and foreign assets.
Who cannot claim HRA exemption?
Employees who do not receive HRA as part of their salary cannot claim HRA exemption.
How much of HRA can be claimed?
The amount of HRA exemption you can claim is the least of the following: actual HRA received, 50% of salary (for metro cities) or 40% of salary (for non-metro cities), and excess of rent paid over 10% of salary.
How much rent is tax-free?
The tax-free amount of HRA is calculated as the minimum of actual HRA received, 50% of salary (for metro cities) or 40% of salary (for non-metro cities), and the excess of rent paid over 10% of salary.
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