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House Rent Allowance - Deductions & Key Consideration to Claim HRA


What is HRA

What is the House Rent Allowance(HRA)

Living in rented accommodation can be a significant expense for most individuals. Thankfully, the Indian government provides a valuable tax benefit to alleviate this burden: House Rent Allowance (HRA). This allowance, received as part of your salary package, can help you save a considerable amount on your income tax.


This comprehensive guide aims to simplify the concept of HRA and provide a clear understanding of its benefits, eligibility criteria, and the calculation process.


HRA is a component of your salary paid by your employer to help you meet your rent expenses. It is exempt from income tax under Section 10(13A) of the Income Tax Act, 1961, subject to specific conditions.


House Rent Allowance Exemption (Section 10(13A))


Exemption Amount: Least of the following


1. Actual House Rent Allowance (HRA) received: This includes the amount received as part of your salary specifically designated as HRA.

2. Excess Rent Paid: This is the amount of rent you pay exceeding 10% of your salary. Salary here refers to your basic salary + dearness allowance.

3. City-Specific Limits:

Metro Cities: (Mumbai, Kolkata, Delhi, Chennai) - 50% of your salary

Non-Metro Cities: 40% of your salary


Conditions:


● You must be paying rent for the accommodation you occupy.

● You must have rent receipts as proof of payment.

● You must not be claiming any other deduction for rent.

● You must opt out of the new tax regime under Section 115 BAC(1A) to avail of this exemption.


Example:

Basic Salary: ₹50,000, HRA Received: ₹10,000, Total Salary: ₹90,000, Rent Paid: ₹15,000


Exemption Calculation:

Actual HRA Received: ₹10,000

Excess Rent Paid: ₹15,000 - (10% of ₹50,000) = ₹5,000

City Limit (Non-Metro City): 40% of ₹50,000 = ₹20,000

Minimum Exemption: ₹5,000 (Least of the 3 options)


Key Points About HRA Exemption:

1. Partially exempt: HRA provides a partial exemption, not a complete waiver of tax on your rental expense.

2. Subject to limits: The maximum tax exemption you can claim depends on your HRA amount, basic salary, actual rent paid, and city of residence.

3. Proof required: To claim exemption, you must provide relevant documents like a rent agreement, rent receipts, and the PAN card of your landlord.


Claiming HRA Exemption:

Submit to your employer, the Rent Agreement, Rent Receipts, and PAN card of your landlord in case the rent paid is more than Rs. 1 Lakh per annum.


Additional Points to Remember:

● HRA exemption is not available if you receive a house rent allowance from any other source, such as your spouse's employer.

● If you are self-employed, you can claim a deduction of up to Rs. 60,000 under Section 80GG for rent paid.

● It is crucial to maintain proper documentation to support your HRA claim.


FAQ for House Rent Allowance?


1. Is there any House Rent Allowance (HRA) Claim for Self-Employed Individuals

In the case of Self-Employed Individuals, Rent Paid deduction can be claimed u/s 80GG. The maximum deduction allowed u/s 80GG is Rs 60,000 per annum.


2. Is House Rent Allowance (HRA) and Interest on House Both Allowed Together:

Yes, both House Rent Allowance (HRA) and deduction on home loan interest simultaneously, provided you meet the criteria for both. The HRA exemption is allowed if you are living in a rented house and paying rent, while the home loan interest deduction is allowed if you have taken a home loan for a self-occupied or vacant property.


3. Can House Rent Allowance Exemption be allowed if Rent is Paid to Parents or Spouse:

Rent Paid to Parents or Spouse or Family Members. Regular payment as tenant needs to be done to parents for exemption and all other requirements of rent receipt, agreement, etc. are to be provided for claiming HRA exemption. Case law supporting the above claim is Abhay Kumar Mittal v. DCIT-2022.


4. Can you claim House Rent Allowance Exemption in your Income Tax Return if not taken/provided by your employer in From16:

Yes, HRA exemption can be claimed in an Income Tax Return if you have not obtained exemption in Form 16. HRA exemption is allowed if you have all the evidence to support your claim of rent payments made.



Conclusion:

HRA is a valuable tool for salaried individuals seeking tax benefits. By understanding its eligibility criteria, calculation process, and claiming procedures, you can maximize your savings and enjoy a more financially secure future.



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