Understanding the Meaning and Taxability of HRA : House Rent Allowance
(Last Updated On: February 14, 2019) Almost every rent payer has to let go of a major chunk of his monthly income with a heavy heart. Baring house rent expenses instead of a vacation, shopping or investment is a stressful experience. Thankfully, the government is focused towards protecting basic needs and provides some relaxation in the form of House Rent Allowance (HRA) tax exemption!!!
Let’s first understand what does HRA mean?HRA is the amount paid by the employer to the employees to help them meet the costs of living in rented accommodation. Most of the employers of both private and public sector/organizations pay HRA as one of the sub-components of salary to their employees. The best part! The salaried individuals who live in a rented house can claim tax exemption on HRA under Section 10 (13A) of Income-Tax Act. An employee has to submit Form 12BB to the employer to claim the exemptions like HRA, LTA etc. and Income Tax deductions under Chapter VI-A. It is to be noted that the Self-employed individuals can also claim tax exemption for the rent paid under Section 80GG of the Income Tax Act.
What is the amount of tax exemption on HRA?HRA tax exemption basically depends on four components: Salary, 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 if living in metro cities or 40 percent for non-metro cities
- Excess of rent paid annually over 10% of annual salary
Regulation of HRA Tax Exemption in different circumstances :Now, that we have understood the meaning and calculation of HRA tax exemption. Let’s find out the tax benefit of HRA under real-life situations-
- Tax Exemption on HRA when you live with your parents:
- Tax Exemption on HRA when you stay in a rented house but you also own a house in the same city:
- Tax Exemption on HRA when you stay in a rented house but you also own a house in a different city:
What are the Important conditions to be taken care in order to claim HRA tax exemption?
- Rent receipt, if the rent is more than Rs. 3,000 per month and rental agreement is also suggested for documentation evidence.
- For HRA exemption, the salary shall be total of basic salary, ‘Dearness Allowance (DA)’ (if it forms a part of retirement benefits) and ‘commission on the basis of sales turnover’.
- A person can claim HRA exemption only for the period during which he stayed in a rented accommodation.
- Owner’s PAN is mandatory if the rent is more than Rs. 8,333 per month.
How to claim HRA exemption at the time of filing Income Tax Return (ITR)?As you know, for claiming HRA, you have to submit an income declaration form i.e. Form 12BB to your employer. But in case, if you could not 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 at the time of filing ITR:
- Calculate the amount eligible for HRA exemption as explained above, you may also take help of our free HRA calculator.
- Subtract the calculated amount from your Salary income.
- Mention this income in the ITR