One of the biggest chunks of our earnings goes into paying for accommodation. This could be in the form of home loan EMIs or rent. But if you're a renter, you'd be happy to know that salaried employees who live in rented apartments can claim their House Rent Allowance (HRA) to reduce their taxes.
HRA is essentially a part of your salary and is tax exempted under section 10 (13A). In other words, HRA is an allowance given by your employer to pay for your accommodation. You are entitled to claim this allowance even if your employer doesn't pay an HRA or if you're self-employed. The only catch here is that you should be living in rented accommodation to be able to claim HRA on your taxes.
Things to Keep in Mind about HRA Deductions
You cannot claim HRA if you're paying rent to your spouse
HRA can be claimed even if you've taken a home loan
HRA can be claimed if you live with your parents by getting a receipt
Submitting your landlord's PAN details is mandatory if your rent exceeds INR 1 Lakh
How is HRA Calculated?
Now that you know what is HRA, let's understand how it's calculated.
If you reside in a metropolitan city, your HRA could be close to 50 percent of your basic salary, whereas it will account for 40 percent if you live in any other city.
The following factors can also help you estimate your HRA.
Actual payable rent – 10% of your basic salary
Prescribed HRA amount
50% of the basic salary
The minimum estimated amount out of the above mentioned above can be claimed as HRA on your taxes.
Let's take an example to understand what is HRA and how is it calculated.
Ms. Priya Bhatt lives in a rented apartment in Gurgaon. She pays Rs. 10,000/- every month as rent, which accounts for Rs. 1,20,000 annually. Here's her salary breakup –
Basic Salary Rs. 30,000
HRA Rs. 13,000
Conveyance Rs. 2000
Special Allowance Rs. 3000
Medical Rs. 1250
Leave Travel Allowance (LTA) Rs. 5000
Total Rs. 54,250
Deductions
PF - INR 2000/-
Professional Tax – INR 200/-
Now let's calculate Ms Priya's HRA.
Actual rent - 10% of basic salary = (₹10,000 x 12) - ₹36,000 = ₹84,000
Actual HRA = ₹13,000 x 12 = ₹1,56,000
50% of basic salary = ₹1,80,000
The least of the three amounts, which is 84,000 in Priya's case, is the HRA deduction that she can claim on her taxes.
HRA Exemption Rules
1. Tax Exemption on HRA if the employer doesn't provide deduction benefits
Even if your employer doesn't provide tax benefits on house rent allowance, you can claim HRA while filing your income tax. This amount will be received as a refund on TDS.
2. Tax Exemption on HRA if house rent is paid by multiple members of the family
In case two members of the family are paying rent, they can both claim HRA if they can provide separate rent receipts. However, only one of them can claim HRA for a single rent payment.
3. Tax exemptions under Section 80GG
As mentioned above, Section 80 GG of the Income Tax Act provides tax exemptions against expenditures made toward house rent. However, HRA exemptions under this particular section apply to an employee only when they have not claimed deductions under any other section of the Income Tax (IT) Act.
Comments