House Rent Allowance

HRA is a component of your salary which you receive from your employer to cover the cost of living in a rented place. It is one of the most crucial elements of salary and is fully or partially taxable under Section 10(13A) of the Income Tax Act. It is designed to ease the financial burden of renting accommodation and helping in the tax planning process.

The house rent allowance calculation depends on several factors, which are:

• Salary

• Received HRA in salary

• Rent amount

• City of residence

The complete or partial taxation of rent allowance depends on whether the employee lives in their own home or in a rented accommodation.

In case of partial taxation, a portion of the house rent allowance is exempt from tax under Section 10 (13A) of the Income Tax Act of 1961. However, the exemption is subject to provisions.

Additionally, while calculating the HRA, the exempted amount is deducted from the total income and allows you to save taxes.

However, if you live in your own house and do not pay housing rent, the HRA you receive as a part of your income is fully taxable.

The house rent allowance is exempt from tax partially and is calculated in multiple ways which considers several factors. The amount exempted is always the lowest among the three from the following:

• The actual HRA in salary received by the employer.

• Actual rent paid - 10% of the basic salary.

• 50% of basic salary for people living in metro cities and 40% for people living in non-metro cities.

For example:

Ms Pooja lives in Pune and pays a rent of ₹13,000 per month. Her monthly salary is ₹45,000, and the break-up is explained below:

The house rent allowance calculation for the above break-up would be:

• Actual HRA= ₹13,000

• Rent - 10% of basic salary= ₹13,000 - (10% x ₹23,000) = ₹10,700

• 40% of basic salary= 40% of 23,000 = ₹9,200

• The least amount of the three calculations will be the exemption amount of her total income, which is 40% of her basic salary, i.e. ₹9,200.

• You can also calculate the HRA using this tool on the official Income Tax Department website.

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• You must have opted for the old tax regime.

• You must be a salaried individual and receive HRA as a component of your salary.

• You must pay rent for your accommodation or house.

• The rent must be paid by you, and you must have the receipts or evidence supporting the same.

• This is not applicable if you live in your own house.

You must have the following documents while claiming your HRA:

• Receipts of the rent you pay to your landlord.

• PAN Card details.

• If the rent is more than ₹1,00,000, then the landlord’s PAN Card details are also required.

• Salary slips with the evidence of HRA as a component of the total salary.

• Rent agreement with the landlord, which includes details like the date of the agreement, name of the landlord, name of the tenant, signatures, revenue stamps, duration of tenancy, etc.

If you do not receive HRA as a component of the total salary or are a self-employed person, you can still benefit from tax deductions. These deductions toward the rented house fall under Section 80GG of the Income Tax Act.

Under this law, the maximum amount of deductions you can claim is the least one among the following:

• ₹5,000 per month (₹60,000 per year); or

• 25% of your total income; or

• (Actual rent paid) – 10% of total income

Deduction of House Rent Allowance under Section 10 (13a) of the Income Tax Act lists these benefits:

• The primary advantage of HRA allowance deductions is that they reduce your taxable income.

• You can benefit from the tax benefits of the HRA even when you are living with your parents. However, you must be able to prove that you pay the rent.

• You can also claim tax benefits while you are paying your home loan EMIs. However, the house must not be located in the employment city or the city you currently live in.

• If you own a house in the same city as your city of residence/employment, you will need to give a valid explanation for not staying there.

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Once you are eligible to claim the exemption, you can claim it while filling out your ITR forms. Follow these steps to claim your HRA:

• Select the correct form that applies to you, such as ITR-1.

• Enter the break-up of your salary as asked in the form.

• Enter the basic salary, which excludes all allowances.

• Add the number of allowances you receive that are non-exempt. Here, you will need to enter the non-exempt part of your HRA under allowances.

• You will also need to declare the HRA exemption amount that you are claiming.

• Next, click on the fifth tab, “Taxes Paid and Verification.”

• Here, you will find an option to enter your “Exempted Incomes.” Under this section, you will find an option for House Rent Allowance.

• Enter the exempted amount under this heading.

• You must be living in rented accommodation to become eligible to claim HRA exemption.

• The HRA is partially taxable. Depending on your salary and location, your HRA deductions are calculated, and the least amount among them is exempted.

• Rent paid to a spouse is not eligible as proof of paying rent.

• Landlord’s PAN is a must if the rent exceeds more than ₹1,00,000.

• If the landlord does not have a PAN Card, they must produce a signed document.

• You can claim tax benefits against your home loan EMIs.

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