House Rent Allowance or HRA is a commonly used term in personal finance and employment benefits. It refers to an allowance provided by employers to their employees to help them meet their housing expenses. Understanding the intricacies of HRA is crucial for both employees and employers to maximize its benefits. Employees should familiarize themselves with the rules and regulations surrounding about HRA tax exemptions and maintain proper documentation to support their claims.
There must be many questions in your head when we talk about HRA, like Can I claim a House Rent Allowance (HRA) exemption, how to calculate HRA tax exemption, and how to claim HRA in ITR? In this article, we will answer all your questions regarding HRA exemption.
HRA is an allowance provided by the employer to the employee to cover the cost of living in rented accommodation. HRA is a part of an employee’s CTC. In Income Tax, HRA is defined as a house rent allowance. It is the amount paid by the employer to the employees to help them meet living costs in rented accommodation. Most employers of both private and public sector/organizations pay HRA as one of the sub-components of salary to their employees.
You can claim HRA exemption for the period during which you stayed in a rented accommodation if the following conditions are fulfilled:
You can also use our free HRA calculator tool to compute the HRA exemption limit on your salary. The HRA tax exemption can be calculated either -
The annual calculations can be done if all factors remain constant throughout a financial year. In case your salary structure or rent amount has changed, then the calculation needs to be done every month.
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Meet Mr.Modi, with a
Monthly basic salary of Rs 30,000
He receives an HRA of Rs 14,000 and
Pays Rs 16,000 rent for an apartment
In a metro city
To avail of HRA benefit, the least of the following amount (yearly) will be exempted for FY 2023-2024 (under the old tax regime): the rest is taxable:
| 1 | Actual HRA received | 14,000 *12 | Rs. 1,68,000 |
| 2 | 50%* of salary (Basic salary + DA) (metro city) | 50% of Rs 3,60,000 | Rs. 1,80,000 |
| 3 | Excess of rent paid annually over 10% of annual salary (Basic salary + DA) | Rs 1,92,000 – (10% of Rs 3,60,000) | Rs 1,56,000 |
*50% because Mr Modi lives in a metro city otherwise, this would have been 40% only. In the above calculation, the sum of Rs 1,56,000, excess of rent paid annually over 10% of annual salary (Basic salary + DA), is the least among the above three indicators. Therefore, the amount exempted u/s 10(13A) shall be Rs. 1,56,000, and taxable income will be the balance amount of Rs 12,000, i.e., total HRA - exempted HRA (1,68,000-1,56,000).
Tax2win’s HRA calculator can be used to understand how much tax you could save on your HRA. Our tax calculator tool will help you to calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.
Here are some common documents typically requested to support the claim for HRA tax exemption:
As you know, for claiming HRA, you must submit an income declaration form, i.e., Form 12BB, to your employer. You can download Form 12BB here.
But if you cannot furnish the required details in Form 12BB, then the last resort is claiming it while filing the ITR. Follow these basic steps to claim HRA exemption when filing ITR:
A Note of Caution: On providing fake rent receipts in the name of parents, spouse or other close relatives, you may fall into trouble. The Income Tax Department shall disallow fake HRA exemptions. So, be aware and claim only the correct amount.
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HRA is one of the important parts of most salaried individuals, which can be used to claim income tax exemption while filing an ITR. The deadline to file the income tax return is July 31, 2024. It is for all taxpayers, including individuals, bodies of individuals, or associations of persons. You can claim HRA exemptions by submitting your monthly rent receipts. However, it is mandatory to report the PAN card details of your property owner if you pay more than Rs 1 lakh annually.
Before discussing how to claim a deduction under Section 80GG, it’s important to understand what Section 80GG stands for. Section 80GG of the Income Tax Act in India allows individuals who pay rent but don't receive House Rent Allowance (HRA) to claim deductions for that rent on their taxes. This benefit applies to both salaried individuals and self-employed persons.
To claim a rent allowance deduction under section 80GG, you need to furnish Form 10BA, which is a declaration that you have a rented house during the relevant period and do not have another residence.
Here are the steps that you need to follow to fill out Form 10BA and claim deduction under section 80GG -
In India, under specific circumstances, individuals can benefit by claiming both House Rent Allowance (HRA) and deductions on home loan interest. To be eligible:
For homeowners who are repaying a home loan while also receiving HRA, they can utilize both tax benefits associated with property ownership to reduce their taxable income. For instance, if you work in one city, rent a place there, while your family resides elsewhere and you own a property in your family's location, you can claim:
Note: These exemptions and deductions are applicable for taxpayers opting for the Old Tax Regime.
If you are living in a rented house and paying rent for it but do not receive any HRA from your employer, you can still claim deductions under Section 80GG. The conditions to claim deductions in this case are:-
A salaried employee must not miss an opportunity to claim an HRA tax exemption, as this is one of the best legal ways to save tax. Make sure to keep all authentic pieces of evidence. To be on the safer side, opt for a money transfer through a bank account as it is difficult to substantiate rental payments made in cash. The exemption amount is computed as per sec 10(13A) of the Income Tax Act.
Making false claims about your HRA can lead to serious penalties. If you under-report your income, you could face a penalty of 50% of the tax you owe or even a penalty up to 3 times the amount of tax you tried to avoid.
The ITR filing for FY 2023-24 has already started. And if you want to minimize your tax liability but find taxes complicated, you can simply let a professional handle them for you. File your ITR now with CA-Assisted services!
Yes, You can apply for an HRA exemption as the rent has to be paid to the owner of the property which means it can be your parents too. In that case, the rent you pay to your parents gets added to their taxable income. Make sure to keep banking transactions to prove that financial transactions regarding your tenancy took place between you and your parents. Further, rent receipts or rental agreement should also be kept as evidence.
For claiming HRA, show it as an exempt allowance under section 10 while furnishing details of your salary income in ITR 1.
Rent receipts or rent agreements would be needed to prove your claim at the time of claiming the HRA deduction with your employer or if your monthly rent paid exceeds Rs 3,000.
You can claim HRA exemption by giving the proper disclosure to your employer and also claiming the same at the time of filing your income tax return for the year.
There might arise two conditions under this
In this scenario, you have to justify some valid reason, i.e., why you are not living in your own house. One case may be that the office location is very far from the house you own. This way, you can claim both HRA and Home loan benefits subject to fulfillment of applicable conditions.
In this scenario, you are eligible to claim tax benefits if you had to shift to another city due to job requirements.
Yes, you can claim both HRA exemption and interest on a home loan under certain conditions. This is beneficial if you pay rent and have a home loan. Here's a quick breakdown of the requirements:
Yes, you can still claim the HRA exemption while filing your Income Tax Return (ITR) even if your Form 16 doesn't show it. You'll need to have the rent receipts and proof of PAN payment to your landlord.
While not mandatory, having a rent agreement is highly recommended for claiming HRA. It strengthens your claim in case of any scrutiny by the Income Tax department. The rent agreement should clearly mention your name, the landlord's name, the rent amount, and the duration.
