What Is HRA?
House Rent Allowance (HRA) is a portion of your employer's salary to cover the costs of rental housing. Only if you live in a rental home can you claim an HRA exemption. The Income Tax Act of 1961's Section 10(13A) and Rule 2A both apply to the HRA exemption.
Employees residing in a rented home can use HRA allowance to nullify the taxes to a greater extent completely. This reimbursement is for costs associated with rented housing. This allowance is entirely taxable if you don't reside in rental housing.
HRA exemption is available to salaried individuals who receive housing rent allowance as a compensation component, providing they contribute to their rent payment. HRA exemption completely or partially lowers the taxable pay. You can use the HRA exemption calculator online which is available at Vakilsearch, to calculate HRA.
One can check the deductions in Form 16 under Part B. The employer will produce this form when you file your ITR Returns. To file a revised return, the applicants will be provided time until the end of the assessment year. You can file for a revised return if your HRA claim is not submitted with the income tax returns.
Eligibility Criteria for HRA Exemption
The tax prediction statement provided by the employer at the beginning of a financial year includes the HRA amount. Your company takes the HRA out of your pay. You'll be able to view the deduction in Part B of Form 16 that was produced by your employer when you file your ITR (Income Tax Returns). You have time till the end of the assessment year to file a revised return if your HRA claim was not submitted with your ITR.
The following rules are applicable for HRA claims:
Your HRA cannot exceed 50% of your base income
The exemption is dependent on at least one of the following, thus the full amount cannot be claimed
Actual rent payments (-) 10% of the base pay is the formula for HRA calculation
HRA received in actuality from the employer
If the tax-claimant resides in a metropolis, 50% of the basic pay
One can apply for HRA benefits if they have a mortgage
If you are a homeowner, you can pay your parents rent and provide the necessary documentation to be eligible for HRA payments. In the same situation, you cannot pay your spouse's rent while claiming HRA.
It is required to submit the HRA claim form with the landlord's PAN information if the rent exceeds ₹1,00,000.
You should subtract 30% tax from the rent if the landlord is an NRI and then declare the difference
This means that the following guidelines are used to determine the HRA tax exemption:
Actual HRA received
Actual rent paid - 10% of salary
if the tax-claimant lives in a metropolis, 50% of the basic salary
If the tax-claimant lives in a non-metro city, 40 % of the basic pay is required.
You can ask your company to restructure your compensation to maximise your tax benefit because the least of the aforementioned is exempt from HRA taxation. If the determining criteria don't change, the HRA computation can be done annually. The calculation can be carried out every month in the event that any factor changes within the relevant financial year. You can use the online HRA calculator monthly, to know your HRA deductions.
What Are the Requirements For HRA Tax Exemption?
The HRA exemption is only offered under Part 80 or any other Section when you pay the landlord directly for the rent
Whenever the rent is not paid; there is no HRA deduction
The HRA deductions are calibrated every month and are perfectly altered in case of job changes or location changes. As a result, the HRA exemption or deductions may change for each change period independently
If you rent to any other family member besides your father, the employer will grant HRA and associated tax exemptions.
Documents Required for HRA Exemption Claim
When requesting an HRA deduction, you must present the following documents:
You must present your PAN card information
A copy of the landlord's or property owner's PAN if the amount of rent you paid during a given financial year exceeds ₹1 lakh.
The rent receipts, which have to have the information below:
Date
Landlord name along with the landlord's PAN Card details has to be provided
The tenant's name
Address of the rental property
Rental duration
A revenue stamp and the landlord's signature are required
The identical receipt is valid for three months
For Claiming the HRA benefits and valley you must provide at least four receipts
If necessary, a xerox or photocopy of the rental agreement
The employee may additionally pay his or her father's rent and be eligible for tax benefits connected to the
House Rent Allowance (HRA).
How Much of My HRA Is Exempt From Tax?
According to income tax regulations, the HRA's tax-exempt portion must be at least one of the following amounts: The actual HRA portion of pay. If the applicant lives in Delhi, Chennai, Kolkata, or Mumbai, they will receive 50% of their base pay; in any other city, they will receive 40%. With the help of Vakilsearch’s HRA calculator income tax, you can calculate the HRA deducted.
How to Calculate HRA Tax Exemption?
Consider that you pay ₹15,000 in rent each month to live in Bangalore. 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 paid = ₹2.4 lakhs annually
50% of the base wage = ₹3 lakhs
Extra rent paid each year that is greater than 10% of the base wage = ₹1.2 lakhs
The HRA exemption amount is ₹1.2 lakhs, while the remaining ₹1.2 lakhs are taxed.
Once you know the HRA claim amount, utilise the appropriate ITR form and submit your ITR by doing the following:
In Form 16 - Part B, under ‘Salary as per requirements contained in section 17(1)’, enter your salary. The HRA determined above should be entered in the ITR 1 under ‘allowances exempt u/s 10’ (choose 10(13A) from the drop-down box).
Use an HRA exemption calculator to find your HRA and then you can simply claim your HRA exemption while submitting your ITR reports if you adhere to these HRA tax exemption requirements.
Use the HRA tax exemption calculator available online to find out your HRA deductions. Claiming HRA exemption is a fantastic method to lower your annual taxable income. Subsequently, one can benefit from investing in insurance plans, retirement annuity plans and savings insurance.
HRA Rules for Self-Employed Individual
Self-employed individuals are not eligible for HRA exemption under Section 10(13A) of the Income Tax Act. However, they can claim a deduction for the rent they pay for their residence under Section 80GG of the Income Tax Act.
The deduction under Section 80GG is limited to 50% of the rent paid, up to a maximum of Rs. 60,000 per annum. To claim the deduction, you must meet the following conditions:
You must be a resident of India.
You must be paying rent for a self-occupied house.
The house must be located in India.
The rent must be paid in cash.
You must have a rent agreement in writing.
The rent amount claimed as a deduction must be supported by documentary evidence, such as a rent agreement, rent receipts, and bank statements.
Here is an example of how the deduction under Section 80GG would work
Suppose you are a self-employed individual and you pay Rs. 12,000 per month in rent for your self-occupied house. You can claim a deduction of Rs. 60,000 for the financial year.The deduction will reduce your taxable income, and you will save tax accordingly.
Here are some additional things to keep in mind about the HRA deduction for self-employed individuals:
You cannot claim the HRA deduction if you also claim the house rent allowance (HRA) benefit from your employer.
The deduction is available only for the rent paid for the self-occupied house. You cannot claim the deduction for the rent paid for a house that you are letting out.
The deduction is available for a maximum of 5 years.
If you are a self-employed individual and you pay rent for your residence, you should consider claiming the deduction under Section 80GG of the Income Tax Act. This can help you save a significant amount of tax.
Benefits of using an HRA calculator
There are many benefits of using an HRA calculator:
Ease of use: HRA calculators are very easy to use. You just need to enter some basic information, such as your basic salary, HRA received, rent paid, and the city of residence. The calculator will then do the rest of the work and calculate the HRA exemption amount for you.
Accuracy: HRA calculators are very accurate. They use the latest tax laws and regulations to calculate the HRA exemption amount. This ensures that you are claiming the maximum exemption amount possible.
Time-saving: HRA calculators can save you a lot of time. You don't have to manually calculate the HRA exemption amount. The calculator will do it for you in seconds.
Peace of mind: Using an HRA calculator can give you peace of mind. You can be sure that you are claiming the maximum exemption amount possible and that you are not overpaying taxes.
If you are a salaried individual who receives HRA from your employer, you should use an HRA calculator to calculate the HRA exemption amount. This will help you save a significant amount of tax.
Frequently Asked Questions (FAQs)
If a person rents a furnished or unfurnished home, he or she may deduct the rent from their taxes (under Section 80 (GG) of the Income Tax Act), so long as HRA is not deducted from their pay. He or she must provide Form 10B.
No, only the rent paid qualifies for an HRA exemption. The maintenance and electricity costs cannot be deducted from your taxes. Subsequently, when determining the landlord's income tax, the fees are not considered.
No, not everyone is eligible to claim an HRA tax exemption. Although most employed people's salaries include HRA, only those who pay rent are eligible for the exemption. Business or self-employed personnel are not eligible for HRA exemption. You can use the HRA tax exemption calculator available online to know your HRA. Now, you can use the HRA calculator monthly to find out the HRA recipients.
A self-employed person is not eligible for an HRA exemption. An HRA exemption can only be used by salaried people whose compensation includes an HRA component.
Generally speaking, government employees, those working in the public sector, and retirees receive a dearness allowance as part of their compensation as an adjustment for living expenses. To account for the effects of inflation, dearness allowance is computed as a percentage of base income.
When the employer contributes a distinct component to HRA, HRA under Section 10(13A) may be claimed. You may claim for rent paid under Section 80G in the absence of it.
An HRA certificate is a document that the government employee issues to support their claim for a house rent allowance when they cannot use a government residence by the established procedures.
Before calculating gross taxable income, the HRA exemption amount is subtracted from the total income. An employee can save taxes in this way. In case an employee leaves in their own house and needs not to pay any rent, the HRA received from your employer will be completely taxed. You can use the HRA calculator income tax to know your HRA.
Yes, you can claim both an HRA tax exemption and a tax rebate on your home loan. The HRA tax exemption is available under Section 10(13A) of the Income Tax Act, 1961. The home loan tax rebate is available under Section 80EE of the Income Tax Act, 1961.
To claim both benefits, you must meet the following conditions:
You must be a salaried employee.
You must receive HRA from your employer.
You must have taken a home loan for the purchase or construction of a house.
You must have not claimed the HRA exemption in the previous year.
You must have not claimed the home loan tax rebate in the previous year.
The amount of HRA exemption that you can claim is the least of the following amounts:
Actual HRA received.
50% of your basic salary and dearness allowance if you are a resident of a metro city.
40% of your basic salary and dearness allowance if you are a resident of a non-metro city.
The amount of home loan tax rebate that you can claim is 15% of the interest paid on the home loan, up to a maximum of Rs. 2 lakh.
Yes, you can claim HRA without a rent receipt. However, you will need to provide other documentary evidence to support your claim. This evidence could include:
A copy of your employment contract, which shows that you receive HRA from your employer.
A copy of your home loan agreement.
A copy of your bank statement, which shows that you have been paying rent.
A letter from your landlord stating the amount of rent that you are paying.
If you do not have any of these documents, you may still be able to claim HRA, but you will need to provide a detailed explanation of your circumstances to the tax authorities.
