House Rent Allowance (HRA): What is HRA? HRA Exemptions & Calculation

What is HRA in salary?

HRA is an allowance provided by the employer to the employee to cover the cost of living in rented accommodation. HRA is a part of an employee’s CTC. In Income Tax, HRA is defined as a house rent allowance. It is the amount paid by the employer to the employees to help them meet living costs in rented accommodation. Most employers of both private and public sector/organizations pay HRA as one of the sub-components of salary to their employees.

Eligibility Criteria to Claim Tax Deductions On HRA

You can claim HRA exemption for the period during which you stayed in a rented accommodation if the following conditions are fulfilled:

1. You should be a salaried employee. The tax benefits related to HRA exemption are available only to salaried individuals. A self-employed person cannot take advantage of this exemption.
2. Receive HRA as a part of your salary package/CTC. The CTC or salary package includes basic salary, allowances, perquisites, etc. You must ensure that HRA is included in your CTC to take advantage of this exemption.
3. Live in rented accommodation. This exemption can only be claimed if you are staying in a rented accommodation, i.e., paying rent. No tax benefit is available if you reside in a self-owned house, as one cannot pay rent to oneself.
   You’re probably wondering…If you’re living in your parent’s house, can you claim this exemption by paying rent to your parents? The answer is yes. You can claim the exemption by paying rent to your parents. However, your parents need to show rental income received from you in their income tax return. Also, it is suggested that you pay the rent via Banking Transfer and execute the Rent agreement.
   Got further queries? Contact Tax2win for expert assistance.
4. Inform the employer about rent paid by submitting rent receipts. You must inform your employer about the rent paid and submit your rent receipts.
   If annual rent exceeds Rs. 1,00,000 annually, then the landlord’s PAN is to be disclosed.
   Even if the declarations have not been made to the employer, you can still claim the HRA exemption while filing the income tax return.
5. Claim in return: Many times, it’s observed that companies do not give HRA exemption in Form 16 due to the unavailability of complete details.
   If your HRA claim has yet to be considered in Form 16, then you can directly claim the exemption in your IT return.
6. HRA exemption is allowed under the old regime only- The employee should opt for the old regime to take the benefit of HRA exemption.
   Our experts are here to help you claim all the available tax exemptions and deductions & file your IT return hassle-free.

How much HRA can be claimed under the income tax act?

HRA tax exemption depends on four components:

• Salary (Basic salary + DA)
• HRA component of the salary
• Rent paid and
• Location of your rental accommodation.

The exemption for HRA benefit is the minimum of:

• The total amount of HRA received
• 50 percent of salary (Basic salary + Dearness Allowance) if living in metro cities or 40 percent for non-metro cities
• Excess of rent paid annually over 10% of annual salary (Basic salary + DA)

You can also use our free HRA calculator tool to compute the HRA exemption limit on your salary. The HRA tax exemption can be calculated either -

• Annually or
• Monthly

The annual calculations can be done if all factors remain constant throughout a financial year. In case your salary structure or rent amount has changed, then the calculation needs to be done every month.

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How to Calculate HRA Exemption?

Example of HRA Calculation

Meet Mr.Modi, with a
Monthly basic salary of Rs 30,000
He receives an HRA of Rs 14,000 and
Pays Rs 16,000 rent for an apartment
In a metro city

To avail of HRA benefit, the least of the following amount (yearly) will be exempted for FY 2023-2024 (under the old tax regime): the rest is taxable:

*50% because Mr Modi lives in a metro city otherwise, this would have been 40% only. In the above calculation, the sum of Rs 1,56,000, excess of rent paid annually over 10% of annual salary (Basic salary + DA), is the least among the above three indicators. Therefore, the amount exempted u/s 10(13A) shall be Rs. 1,56,000, and taxable income will be the balance amount of Rs 12,000, i.e., total HRA - exempted HRA (1,68,000-1,56,000).

Tax2win’s HRA calculator can be used to understand how much tax you could save on your HRA. Our tax calculator tool will help you to calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.

Documents Required to Claim HRA Tax Exemption

Here are some common documents typically requested to support the claim for HRA tax exemption:

1. Rent Receipts: Rent receipts are crucial documents that serve as evidence of your rental payments. They should include details such as the landlord's name, address, rental period, the amount paid, and the tenant's name. Rent receipts should be duly signed or stamped by the landlord and should be provided for each rental payment made during the financial year.
2. Rent Agreement or Lease Deed: Providing a copy of your rental agreement or lease deed can further validate your tenancy. This document outlines the terms and conditions of your rental agreement, including the rent amount, duration, and other pertinent details. It serves as legal proof of your tenancy and strengthens your HRA claim.
3. PAN (Permanent Account Number) of Landlord: In some countries, such as India, providing the PAN of your landlord is mandatory for claiming HRA tax exemption. Ensure to request this information from your landlord and include it in your documentation.
4. Declaration of HRA: Employers often require employees to submit a declaration form stating the amount of HRA received and the details of their rental expenses. This declaration helps employers calculate the eligible HRA exemption limit while deducting taxes from your salary.
5. Utility Bills: While not always mandatory, providing utility bills such as electricity bills, water bills, or gas bills can further substantiate your claim by demonstrating your residence at the rented accommodation.

How to Claim HRA Exemption at the Time of Filing ITR?

As you know, for claiming HRA, you must submit an income declaration form, i.e., Form 12BB, to your employer. You can download Form 12BB here.

But if you cannot furnish the required details in Form 12BB, then the last resort is claiming it while filing the ITR. Follow these basic steps to claim HRA exemption when filing ITR:

1. Calculate the amount eligible for HRA exemption as explained above; you may also take the help of our free HRA calculator.
2. Calculate your taxable salary by subtracting the exemptions and deductions from your gross salary.
3. File your income tax return using the relevant ITR form.
4. Fill in the HRA details in the tax return form. You need to enter the actual HRA received, the least of (a, b, c) as mentioned earlier, and the HRA exemption amount calculated.
5. Attach the necessary documents, such as rent receipts, rent agreement, and Form 12BB.
   (Do note that you can download Rent Receipt via Tax2win, which too Free.)

A Note of Caution: On providing fake rent receipts in the name of parents, spouse or other close relatives, you may fall into trouble. The Income Tax Department shall disallow fake HRA exemptions. So, be aware and claim only the correct amount.

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Date for Filing the ITR and Claiming the HRA Tax Exemption

HRA is one of the important parts of most salaried individuals, which can be used to claim income tax exemption while filing an ITR. The deadline to file the income tax return is July 31, 2024. It is for all taxpayers, including individuals, bodies of individuals, or associations of persons. You can claim HRA exemptions by submitting your monthly rent receipts. However, it is mandatory to report the PAN card details of your property owner if you pay more than Rs 1 lakh annually.

How to Claim Deduction Under Section 80GG?

Before discussing how to claim a deduction under Section 80GG, it’s important to understand what Section 80GG stands for. Section 80GG of the Income Tax Act in India allows individuals who pay rent but don't receive House Rent Allowance (HRA) to claim deductions for that rent on their taxes. This benefit applies to both salaried individuals and self-employed persons.

To claim a rent allowance deduction under section 80GG, you need to furnish Form 10BA, which is a declaration that you have a rented house during the relevant period and do not have another residence.

Here are the steps that you need to follow to fill out Form 10BA and claim deduction under section 80GG -

• Login to the Income Tax Department’s official website by entering your username, password, and captcha.
• Click on e-file > income tax forms.
• Search Form 10BA from among the various forms.
• Select the Assessment year for which you want to file Form 10BA and click on continue.
• Now click ‘Let’s get started’.
• Enter the details of each property, like the address of the property, details of rent paid, landlord’s address, etc.

How to Avail Tax Benefits on your Home Loan as well as HRA?

In India, under specific circumstances, individuals can benefit by claiming both House Rent Allowance (HRA) and deductions on home loan interest. To be eligible:

• You must be a salaried individual receiving HRA as part of your income.
• You should reside in rented accommodation within the city where you are employed.
• You must have taken a home loan either individually or jointly with your spouse.

For homeowners who are repaying a home loan while also receiving HRA, they can utilize both tax benefits associated with property ownership to reduce their taxable income. For instance, if you work in one city, rent a place there, while your family resides elsewhere and you own a property in your family's location, you can claim:

• HRA exemption for rent paid
• Deduction on home loan interest under Section 24
• Principal repayment deduction under Section 80C
• Deduction for home loan interest under Section 80EE or Section 80EEA

Note: These exemptions and deductions are applicable for taxpayers opting for the Old Tax Regime.

What to Do If We Do Not Receive HRA?

If you are living in a rented house and paying rent for it but do not receive any HRA from your employer, you can still claim deductions under Section 80GG. The conditions to claim deductions in this case are:-

1. Self-employed or salaried: You should be either self-employed or salaried to be eligible for the deduction under Section 80GG.
2. No HRA received: You should not have received any House Rent Allowance (HRA) during the year for which you are claiming the deduction under Section 80GG. This condition is important as HRA is already eligible for tax benefits, and this provision is meant for individuals who do not receive HRA.
3. No ownership of residential accommodation: Neither you, your spouse, your minor child, nor the Hindu Undivided Family (HUF) of which you are a member should own any residential accommodation at the place where you currently reside, perform duties of office or employment, or carry on business or profession. This condition is to ensure that the deduction is available only to individuals who do not have a self-owned property at their current location.

A salaried employee must not miss an opportunity to claim an HRA tax exemption, as this is one of the best legal ways to save tax. Make sure to keep all authentic pieces of evidence. To be on the safer side, opt for a money transfer through a bank account as it is difficult to substantiate rental payments made in cash. The exemption amount is computed as per sec 10(13A) of the Income Tax Act.

Penalties for false claim

Making false claims about your HRA can lead to serious penalties. If you under-report your income, you could face a penalty of 50% of the tax you owe or even a penalty up to 3 times the amount of tax you tried to avoid.

The ITR filing for FY 2023-24 has already started. And if you want to minimize your tax liability but find taxes complicated, you can simply let a professional handle them for you. File your ITR now with CA-Assisted services!