HRA (Housing Rent Allowance) is exempt from tax under the Income Tax Act of 1961 and is used to pay for accommodation. Read on if you want to know. What is a calculated HRA?
House Rent Allowance (HRA) is the money you can use to pay for your housing expenses. You can use calculate HRA allowances to pay for rent, utilities, and other household expenses. Your employer will give you HRA contributions as a part of your salary and HRA is not a part of taxable income.
As an employee, you must know what is House Rent Allowance and how many tax exemptions apply to it. In this article, you will learn about HRA and the tax benefits you will get. The article also covers the process of calculation of HRA exemption.
What Is HRA?
House Rent Allowance is a form of financial assistance to help you pay your housing costs. This amount is given to the employee by the employer. Usually, the HRA allowances are 40 to 50% of your basic salary depending upon where you work and live.
Employers have to pay HRA allowances under the Income Tax Act of 1961 if the employee is eligible for them. This amount is exempted from income tax and can be used by the employee for accommodation purposes. Several tax deductions apply to HRA allowances that can be checked when filing the ITR Returns. Complete information about the location of the Residence, the payment of rent, and the landlord has to be provided to get the benefits of HRA exemption.
HRA For Self-Employed Individuals
For self-employed individuals, there is no provision for HRA exemption. 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.
HRA and Home Loan Interest Deduction
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.
Claiming HRA When Living with Parents
To claim HRA when living with parents, consider the following:
- Prepare a rental agreement between you and your parents for the portion of the house you occupy.
- Ensure your parents provide you with receipts for the rent you pay.
- Pay the rent to your parents through a bank transaction or cheque rather than in cash.
- Ensure your parents have proper ownership documents of their house.
- If you occupy a specific portion of the house, make it identifiable as a separate living space.
How to Claim Deduction Under Section 80GG?
To claim a deduction under Section 80GG of the ITA, follow these steps:
Check Eligibility Criteria
- You must be an individual taxpayer, including self-employed individuals and salaried employees without HRA.
- You or your spouse or minor child should not own any residential accommodation in the location where you currently reside or perform your duties.
Calculate the 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.
Maintain Documentation
To claim the deduction, you need to submit Form 10BA along with your income tax return (ITR). Maintain rent receipts, a rental agreement, and a declaration in Form 10BA as evidence.
File the Income Tax Return
- Include the deduction amount calculated in the relevant section of your ITR form.
- Attach the necessary documents.
- File your ITR within the due date specified by the Income Tax Department.
When Is a Landlord’s PAN Required?
If you live in a rented house where the annual rent amount exceeds Rs.1 lakh, you will have to submit the PAN card details of the house owner. In case the owner does not have a PAN card, a self-declaration stating they do not have a PAN must be signed as per Circular No. 8/2013.
Documents Required for HRA Exemption
The House Rent Allowance is paid by the employer as a part of the basic salary. To get HRA exemptions you have to mention it in Form 16 while filing for income tax returns. Several documents are required to get HRA exemptions. We’ve mentioned below a checklist of documents required.
- If the annual rent exceeds the amount of ₹1,00,000, the PAN card of the landlord is required.
- The PAN card of the employee is required.
- Payment proof of rent is required which can be rent receipts.
- The rent receipts should contain the date of the payment along with the landlord’s name and the PAN card details.
- Information about the location and the address of the residential property.
- At least rent receipts of the last 4 months are required to claim HRA exemption.
- A copy of the rental agreement is required to claim HRA exemption.
- The duration of rent is required.
- The name of the landlord and the tenant is required.
- If the applicant is living with the parents and pays rent to them they can apply for HRA exemption, however, they have to provide proof of payment of rent.
Rules for HRA Exemption
To get access to HRA exemptions you have to be eligible for them and there are certain rules regarding HRA exemptions. There is a list of important rules regarding HRA allowances and the tax benefits provided on them.
- HRA exemption is provided only to Employees for companies who do not own an apartment in the location they live in.
- The employee must be living in a rented.
- In case the employee lives with the parents they have to provide rent receipts to get benefits of HRA exemptions.
- If the employee or their spouse owns a house in the area they live in they are not eligible for HRA exemptions.
- HRA exemption is offered only when the rent is directly paid to the landlord.
- If the employee lives in a metro city 50% of their basic salaries are eligible for HRA exemption tax benefits.
- If the employee lives in a non-Metro city 40% of the basic salary is eligible for HRA exemptions.
- To be eligible for HRA exemptions the employee has to provide the rent receipts of at least 4 months as proof of rent payment.
- When an employee provides housing rent allowances to the employee it is mentioned in Form 16 under section 10(13A).
- In case this section is not present the exemption can be availed under section 80G.
Calculating HRA Exemptions
The housing rent allowance given to the employee by the employer or the company is exempted from tax. Depending on where the employee lives 40 to 50% of the basic salary is exempted from tax. If you want to calculate the HRA exemptions you will get on your basic salary we have mentioned the steps below for the same.
- Calculate the amount of HRA you receive from the employer.
- If you live in a metro city calculate 50% of your basic salary and if you live in a non-metro city calculate 40% of your basic salary.
- Calculate 10% of a basic salary and subtract it from the rent you pay each month.
- Out of these three calculations, the one that has the minimum value is exempted from tax.
If you want help in calculating the HRA exemptions you will receive, you can use online calculators. Vakilsearch has an online HRA calculator in which you have to provide basic details such as the basic pay you receive, the allowance you receive, the city you live in, etc. After you provide this information your HRA exemptions will be calculated.
What If You Don’t Receive an HRA?
Self-employed people, who do not receive an HRA component, can utilize the provisions of Section 80GG of the ITA to claim HRA exemption. This option is also available to salaried individuals paying rent if their employer does not provide an HRA.
Hence, when computing HRA exemption, check whether you are eligible to claim the deduction under Section 80GG or Section 10(13A) of the ITA.
Important Considerations for HRA Deductions
You cannot claim HRA exemption if you are paying rent to your spouse
- HRA exemption can be availed even if you have taken a home loan
- PAN details of your landlord are mandatory if your annual rental pay exceeds ₹1 lakh
- In the case of an NRI landlord, a TDS of 30% must be deducted from the rent before
Conclusion
Every company and employer has to provide an HRA to their employees who live in rented accommodations. There are several rules and regulations regarding these HRA allowances. The HRA that an employee receives is exempted from tax as mentioned by the Income Tax Return Act of 1961. In this article, we talked about what is House Rent Allowance is and how you can calculate the exemptions that you will get.
If you want to calculate the tax benefits you will get on your HRA allowances you can use the HRA exemption calculator by Vakilsearch. It is an easy-to-use tool that will calculate the exemptions you will receive. Vakilsearch can also help you with multiple legal procedures. The team of Experts will guide you through legal compliances and help you solve all your queries.
FAQs:
1. Are there any specific conditions to claim HRA benefits?
To claim HRA benefits, you need to be a salaried individual, have the HRA component in your salary structure and must be occupying a rented space. You also need to ensure that neither you nor your spouse owns any residential accommodation in the place where you currently reside.
2. How does living in a metro city affect HRA calculations?
Yes, if you live in a metro city, deductible HRA is 50% of your basic salary. If you live in a non-metro city, deductible HRA is 40% of your basic salary.
3. Can two working members of the same family both claim HRA for the same rented accommodation?
No, two working members of the same family cannot both claim HRA for the same rented accommodation. Only one person can claim HRA per rental.
4. Do I need to submit proof of rent payment to claim HRA benefits?
Yes, you need to submit proof of rent payment to claim HRA benefits. You can submit rent receipts or a bank statement as proof of rent payment.
5. Can I claim HRA if I pay rent for a property outside India?
No, you cannot claim HRA if you pay rent for a property outside India. HRA is only applicable for rent paid for accommodation in India
