House Rent Allowance (HRA) is part of many salaries. If you live in a rented house, part or all of your HRA can be tax free under Section 10(13A) of the Income Tax Act. Here is how the exemption works.
Who can claim
- You must be a salaried employee receiving HRA.
- You must live in rented accommodation and actually pay rent.
- You must choose the old tax regime. HRA exemption is not available in the new tax regime under Section 115BAC.
How the exemption is calculated
The tax free part of HRA is the lowest of these three amounts:
- Actual HRA received from the employer
- Rent paid minus 10 percent of salary
- 50 percent of salary if you live in Delhi, Mumbai, Kolkata or Chennai, or 40 percent of salary in other cities
Here, salary means basic salary plus dearness allowance if it forms part of retirement benefits, plus any commission based on a fixed percentage of turnover.
Example
Suppose your basic salary is Rs 40,000 a month, HRA is Rs 20,000 a month, and you pay rent of Rs 18,000 a month in Pune.
- Actual HRA: Rs 20,000
- Rent minus 10 percent of salary: Rs 18,000 minus Rs 4,000 = Rs 14,000
- 40 percent of salary: Rs 16,000
The lowest is Rs 14,000, so Rs 14,000 a month is exempt and Rs 6,000 is taxable.
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Documents needed
- Rent receipts or a rent agreement
- Landlord’s PAN if annual rent is more than Rs 1 lakh
- Proof of payment, preferably by bank transfer
Submit these to your employer during the year so that less tax is deducted. If you miss this, you can still claim the exemption while filing your income tax return under the old regime.
Paying rent to parents
You can pay rent to your parents and claim HRA, provided the house is owned by them, you actually pay rent and they show it as income in their returns. Rent paid to a spouse is generally not accepted.
No HRA in salary
If your salary does not include HRA, you may be able to claim a deduction under Section 80GG for rent paid, subject to limits and conditions, again only under the old regime.
Home loan and HRA together
You can claim HRA and home loan benefits together in some cases, such as when your own house is in another city or not yet ready.
Bottom line
HRA exemption is the lowest of three amounts. Keep rent receipts and bank proof, and remember it applies only under the old tax regime.
Source / स्रोत: Income Tax Department, Income Tax e-filing portal
