HRA exemption when rent is paid but also having own house in the same city.

This query is : Resolved

Manoj Pandit (Querist)
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21 February 2017 An employee having own house in Bangalore is staying on rent somewhere approximately 8 kms far from his own house as that house in an industrial area and backward in infrastructure like school, hospitals, stationeries, etc. His employer contends that HRA benefits can't be availed as he has own house in the same city. 1. whether HRA benefits can be claimed if the two houses are in different municipal areas.? 2. whether HRA can be claimed even if it's under same city as the assessee is actually paying rent.? 3.whther HRA benefits can be claimed if the assessee offers some house rent income on that house irrespective of locality.?! Thanks in advance. Anticipating a practically supported responses.

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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21 February 2017 HRA benefits will not be available if the house is situated in same city.

Manoj Pandit

Manoj Pandit (Querist)
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21 February 2017 Dear sir, Kindly solve a confusion as the rule 2A doesn't state anything

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 The eligibility to claim House Rent Allowance (HRA) exemption under the Income Tax Act can indeed be confusing, especially when you own a house in the same city. Here’s a detailed analysis of your situation:

### **1. HRA Benefits When You Own a House in the Same City**

#### **Rules for Claiming HRA:**

1. **HRA Eligibility:**
- **General Rule:** HRA can be claimed if you are paying rent for accommodation and do not live in your own property.
- **Own Property in the Same City:** Owning a property in the same city does not automatically disqualify you from claiming HRA. The key is whether you are living in the rented accommodation and whether the property you own is actually not being used as your residence.

2. **Two Different Municipal Areas:**
- **Locality and Municipal Areas:** The fact that the two houses are in different municipal areas within the same city (e.g., Bangalore) does not affect the eligibility for HRA. HRA rules apply based on whether you are actually renting a property and paying rent.

#### **Practical Considerations:**

1. **Claiming HRA Despite Owning a House:**
- **Actual Residence:** If you are actually residing in a rented accommodation and the house you own is not being occupied due to reasons like lack of infrastructure or other personal reasons, you can claim HRA.
- **Supporting Evidence:** You must provide evidence such as rent receipts, rental agreements, and proof of payment to substantiate your claim.

2. **HRA Claim When Offering Rent Income:**
- **Rent Income:** If you are renting out your own property and receiving rental income, you can still claim HRA for the rented accommodation where you are actually living. However, you must declare the rental income under "Income from House Property" and pay taxes accordingly.
- **No Overlap:** HRA exemption is distinct from rental income. They are treated separately in tax calculations—HRA exemption for the rented property and rental income for the owned property.

### **Legal References and Compliance:**

1. **Income Tax Act and Rule 2A:**
- **Rule 2A:** This rule does not specifically address the scenario where the taxpayer owns a house in the same city but covers general HRA exemption conditions. The rule primarily focuses on how HRA is to be calculated and does not preclude HRA claims based on property ownership in the same city.
- **Judicial Precedents:** Courts have upheld the right to claim HRA in cases where taxpayers own property but are renting elsewhere for valid reasons.

2. **Documentation Required:**
- **For HRA Claim:** Provide rent receipts, rental agreement, and proof of rent payments.
- **For Rental Income:** Declare the rental income from the owned property and include it in your income tax returns under "Income from House Property."

### **Summary:**

1. **HRA Can Be Claimed:** Yes, you can claim HRA even if you own a house in the same city, provided you are genuinely residing in the rented accommodation and are paying rent.
2. **Different Municipal Areas:** Owning a house in a different municipal area within the same city does not disqualify you from claiming HRA.
3. **Rental Income:** You can claim HRA for the rented property while declaring any rental income from the owned property separately.

### **Practical Steps:**

- **Submit Proper Documentation:** Ensure to provide all necessary documentation to your employer for HRA claim and declare rental income in your tax returns.
- **Consult a Tax Professional:** If there are complexities or disagreements with your employer, consulting a tax professional or financial advisor can provide personalized guidance and ensure compliance.

Your right to claim HRA is based on the actual use of rented accommodation and adherence to the rules specified under the Income Tax Act, rather than solely on the fact of property ownership.