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HRA Exemption

HRA Exemption Rules

Last Updated 07th Mar 2021

  • House Rent allowance is compensation provided by the employer to the employee to meet the cost of renting a home in the city of the workplace.
  • Tax benefit for House Rent Allowance is available under the Income Tax Act, 1961.
  • HRA exemption will be the rent paid minus 10% of the basic salary or 50% of basic salary for a metro city employee and 40% of basic salary for non-metro city or total amount received as HRA; whichever is lower of the three.
  • Individuals need to provide rent receipts and the rent agreement to claim HRA exemptions.
  • Individuals can also claim exemptions if they are paying rent to their family members.
  • No change in Income Tax Slabs, Introduction of Dispute Resolution Committee and much more. Read Union Budget 2021 Highlights New
INCOME TAX CALCULATOR

House Rent Allowance - All about HRA Exemption

House Rent Allowance is a component of the Income under the head Salary provided by the employer to the employee for rented accommodation. Its primary use is to help employees with tax benefits towards the payment for accommodations every year. HRA comes under Section 10 of the Income Tax Act, 1961, and the exemption can be claimed partially or fully.

The Union Budget 2020 introduced the new tax regime. It provided the individuals with an option to choose either the old tax regime with exemptions or the new tax regime without certain exemptions. So, the tax benefit of house rent allowance will be availed only by the individuals opting for the old tax regime.

Eligibility for Availing HRA Exemptions

The eligibility criteria to avail HRA exemption is:

  • The person should be a salaried employee.
  • He has the HRA component in his salary structure.
  • He should be living in rented accommodation.

HRA Exemption Rule

The HRA exemption limit is the lowest of the following three provisions:

  • The actual rent paid minus 10% of the basic salary + DA (Dearness Allowance)
  • In case an employee is staying in a metro city, 50% of the basic salary and 40% if he lives in a non-metro city.
  • The total amount received as HRA from the employer.

Calculation of HRA Exemption

Consider the scenario of an individual, Mr. Bhaavesh.

He earns a basic monthly salary of ₹ 30,000, Medical allowance of ₹ 2,500, other allowances of ₹ 2,500 and HRA of ₹ 15,000. He pays ₹ 12,000 as rent for accommodation in a metro city.

a) Actual HRA received

15000*12=180,000

b) Actual rent paid annually over 10% of annual salary

12000*12=144000-10% of [(₹ 30,000 x 12)]

=₹ 1,08,000

c) 50% of salary (metro city)

[(30,000 x 12) x 50%)] = 180,000

₹ 1,08,000 is the least value obtained out of the three methods. Thus, the amount of HRA exempt will be ₹ 1,08,000.

Documents Required for HRA

An individual will have to submit the rent receipts and the rent agreement to avail the benefit under the house rent allowance. If the rent paid by him exceeds ₹ 1,00,000 annually, then he will have to submit the PAN Card details of the landlord along with the rent receipts and rent agreement.

Special Cases to Claim HRA Benefit

1. If rent is paid to a family member

An individual can avail the benefit under HRA if he is paying the rent to the family member but the individual must not own that accommodation. So, if an individual is staying with his parents in their house and has the relevant documents to show the evidence of rent paid then he can claim the benefit.

2. Own a house but living in a different city

If an individual is working in a different city, he can claim the tax benefit for interest paid on the home loan and HRA for the rented accommodation provided he has the relevant documents to back his claim.

Budget Highlights 2021

  • Tax Related Announcements in Budget 2021

    Taxation Related

    • Senior citizens above the age of 75 years who have only pension and interest income are now exempt from filing Income Tax Returns.
    • Tax holiday on affordable housing projects extended for 1 year till March 31, 2022.
    • Tax holiday for start-ups increased by one more year till March 31, 2022.
    • A dividend payment in REIT (Real estate investment trusts) and INVIT (Infrastructure investment trusts) exempt from TDS.

    Tax Assessment and Filing Related

    • Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns.
    • National faceless income tax appellate tribunal will be set up for individual taxpayers.
    • Dispute resolution committee will be set up for small taxpayers.
    • The time frame for reopening of income-tax assessment cases reduced from 6 years to 3 years.

    Savings Related

    • Late contribution to EPF by the employer for employees will not be allowed as a deduction to the employer.

    Others

    • A budget of Rs. 35,000 crore allotted for Covid-19 vaccines.

FAQs

Is rent receipt mandatory for the HRA exemption?

The receipts of rent paid during the year will act as proof of the rent. In case, rent receipt is not available, one will be required to file his lease agreement along with the bank statement that shows rent paid.

How to claim HRA without the PAN Card of Landlord?

In case the annual rent exceeds ₹ 1,00,000 per annum, the employee must obtain the PAN card from the landlord. If the landlord does not have a PAN, a declaration needs to be obtained that will include details such as the landlord's name, address, the rent amount you are paying, and the period of accommodation.

Does HRA include maintenance, electricity charges, and other such charges?

No, the HRA is paid for rent only. Hence, it does not include other charges.

Is it possible to claim HRA for more than one house?

No, HRA is given only for one rented house in the concerned city of the workplace.

Can I claim HRA if I am living in my own house?

No, it is not possible to claim HRA if you are living in your own house.

Will I be able to claim HRA if I own a house but is living in a different city and working as a salaried employee there?

If you own a house but are staying in a different city because of your job, then you can claim HRA benefit only if you are living in a rented property.

Can I claim HRA and deduction in the home loan interest rate as well?

Yes, both can be claimed. House rent allowance does not impact the deduction of interest in the home loan.

Can I claim 80GG if I get HRA?

No, deduction under Section 80GG is available only to the self-employed person or the salaried individual who has not received HRA anytime during the year. The deduction limit under the section is ₹ 60,000 per year.

What is the percentage of HRA on a basic salary?

For HRA Calculation, the salary is the sum of dearness allowances, basic salary, and other commissions. If one does not get commissions or dearness allowance, then the house rent allowance will be 40 percent or 50 percent of your basic salary, subject to certain terms and conditions.

Can the husband and wife claim HRA for the same house?

Yes, both husband and wife can claim HRA separately for their respective shares, but total rent claimed by both must not exceed ₹ 20,000.

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Our News - Mar 2021
  • 2021-03-02 : CBDT extends dates for penalties and assessments
    CBDT extended the due date for penalties under the Income Tax Act, 1961 to 30th June 2021. Further, it also extended the deadline for assessments under the Income Tax Act and notices under the Benami Property Transaction Act, 1988 to 30th April 2021.
  • 2021-02-02 : Income tax won’t be taxed twice for NRIs
    Union Budget 2021-2022 proposes to provide relief from double taxation for NRIs on money accrued in foreign retirement accounts by claiming relief on tax deducted on such money in India. Currently, there is a mismatch in the year of taxability of such funds in India and the respective foreign country.
  • 2021-02-01 : Dispute resolution committee and National faceless income tax appellate tribunal to be set up
    FM proposed the setting up of the National faceless income tax appellate tribunal for individual taxpayers. Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns. Further, a Dispute a resolution committee will be set up for small companies.
  • 2021-02-01 : Senior citizen exempted from Income Tax filings
    FM announced tax exemption for senior citizens in the budget 2021-2022. Senior citizens above the age of 75 years, who only have pension and interest income will be exempted of filing of income tax returns.
  • 2021-01-12 : CBDT rejected the extension of ITR due date
    CBDT rejected further extensions for filing return for cases where audit reports need to be filed. The last date for filing the audit report is January 15. Board stated that sufficient time has already been given to the taxpayers to file their returns.
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