HRA Exemption

Last Updated 27th May 2020

HRA Overview

 

  • 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.

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 Rs. 30,000, Medical allowance of Rs. 2500, other allowances of Rs. 2500 and HRA of Rs. 15,000. He pays Rs. 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 [(Rs. 30,000 x 12)]

=Rs. 1,08,000

c) 50% of salary (metro city)

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

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

FAQs on HRA Exemption

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 Rs. 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 Rs. 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 Rs. 20,000.

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