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.
You can also use a free HRA calculator to estimate the amount you can claim for house rent allowance.
HRA Exemption Rules
Here are a few 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.
How to Make an HRA Claim?
Now that you know everything about what is HRA, let's discuss how you can claim it.
There are two ways to claim House Rent Allowance on your taxes. The first one is by submitting form-16. This form is provided by your employer, and it contains the information on the HRA provided to you. If you're content with the amount, you don't need to take any further steps and just file it with your ITR.
Alternatively, if you want to claim a higher exemption, you would need to submit proof documents with your ITR. These documents could include your rent agreement, rent payment receipts, and your landlord's pan card.
Closing Notes
So, here you have it. Here's everything you needed to know about what is HRA and how you can claim it to reduce your taxes. This is an excellent option for those who've relocated for their jobs and are spending large chunks of their annual income on rent.
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