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Claim Tax Deduction on HRA for Two House

Claim Tax Deduction on HRA for Two House: Submit proof of both rented properties to avail tax deduction on HRA for both houses.

Introduction:

House Rent Allowance (HRA) is a type of compensation provided by the employer to an employee to cover their living expenses. The HRA received by an employee is considered a part of their taxable income, and the employee can claim tax deductions on HRA under section 80GG of the Income Tax Act.

Calculation of HRA:

The calculation of HRA is based on several factors such as the employee’s basic salary, the rent paid by the employee, and the location of the house. The HRA received by an employee is the least of the following:

Rent Paid – 10% of Basic Salary

40% of Basic Salary (for those living in metropolitan cities)

50% of Basic Salary (for those living in non-metropolitan cities)

Benefits of Calculating HRA

HRA – House Rent Allowance calculation is a common component of salary packages offered by employers to their employees to cover the cost of renting a house. The calculation of HRA is an essential aspect of an individual’s financial planning as it can help in reducing the taxable income and ultimately lower the amount of tax that needs to be paid.

Here are some of the benefits of calculating HRA:

  • Tax Savings: HRA is exempt from tax, up to a certain limit, as per the provisions of the Income Tax Act. Calculating HRA accurately can help an individual in reducing their taxable income and save taxes.
  • Budgeting: HRA calculations help in determining the amount that can be set aside each month for housing expenses. This can help in budgeting and managing finances more efficiently.
  • Proof of Expenses: Calculating HRA provides proof of housing expenses, which can be used while filing taxes. This can help in avoiding any discrepancies that may arise while filing tax returns.
  • Improved Cash Flow: By calculating HRA, an individual can determine the amount of money they need to set aside each month for housing expenses. This can improve the cash flow and help in managing finances more efficiently.
  • Increased Savings: By saving on taxes, an individual can increase their savings, which can be used for various other purposes, such as investments, emergency funds, etc.
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Claiming Tax Deduction on HRA for Two Houses:

In some cases, employees might have two houses – one in their home town and one in the city where they work. In such cases, they might receive HRA for both the houses. In such situations, the employee can claim tax deductions on HRA for both the houses. However, they need to keep in mind the following points:

  • Rent Paid: The employee must ensure that the rent paid for both the houses is reflected in their rental agreement. They must also have proof of the rent paid for both the houses.
  • Basic Salary: The basic salary used for the calculation of HRA must be the same for both the houses.
  • Location of the Houses: The location of both the houses must be considered while calculating the HRA. For example, if one of the houses is located in a metropolitan city and the other in a non-metropolitan city, the calculation of HRA for both the houses will be different.

Consequences of Not Calculating HRA

There can be various consequences of not calculating HRA accurately, including: 

  • Overpayment of Taxes: If an individual does not calculate HRA accurately, they may end up paying more taxes than they actually owe. This can result in an overpayment of taxes, which may be difficult to recover.
  • Tax Discrepancies: Not calculating HRA accurately can lead to tax discrepancies while filing tax returns. This can result in tax notices and penalties, which can be time-consuming and stressful to resolve.
  • Loss of Exemptions: HRA is exempt from tax up to a certain limit, as per the provisions of the Income Tax Act. Not calculating HRA accurately can result in a loss of tax exemptions and higher taxable income.
  • Poor Financial Planning: HRA calculations help in determining the amount of money that needs to be set aside each month for housing expenses. Not calculating HRA accurately can result in poor financial planning and mismanagement of finances.
  • Increased Stress: Tax-related issues can be stressful, and not calculating HRA accurately can lead to additional stress and anxiety, especially during tax-filing season.

Steps to Claim Tax Deduction on HRA for Two Houses:

  • Determine the Rent Paid for both the houses: The employee must determine the rent paid for both the houses.
  • Calculate the HRA for both the houses: The employee must calculate the HRA for both the houses based on the rent paid and their basic salary.
  • Submit the Rent Receipts: The employee must submit the rent receipts for both the houses to their employer.
  • Claim the Tax Deduction: The employee can claim the tax deduction on HRA for both the houses while filing their income tax return.

Conclusion:

Claiming tax deduction on HRA for two houses can be a complicated process. However, by keeping in mind the points mentioned above, the employee can claim the tax deduction easily. It is important for the employee to keep all the necessary documents and receipts in order to avoid any confusion during the calculation of HRA and the claim process. The calculation of HRA plays a crucial role in determining the amount of tax deductions that an employee can claim. Hence, we at Vakilsearch are here to help you with the seamless process that best suits your requirements.

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