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What is HRA?
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HRA or House Rent Allowance is an allowance which salaried individuals receive from their employer for meeting the rental expenses of their house. The amount received is partly exempted from tax, for the employee who are residing in a rented house. In case the employee lives in his/her own house and does not pay any rent, the entire amount would be taxable
Who can avail tax exemption on HRA?
This tax benefit is available only to the salaried individuals (opting for old tax regime) who have the HRA component as part of their salary structure and is staying in rented accommodation. Self-employed professionals cannot avail this deduction.
What is the tax benefit of House Rent allowance (HRA)?
Least/minimum of the following is exempt (Not taxable/deducted from total HRA received)
(a) Actual amount of HRA received
(b) Rent paid Less 10% of salary
(c) 50% of salary if house taken on rent is situated in Kolkata, Chennai, Mumbai and Delhi (or) 40 % of salary if the house is taken on rent is NOT situated in Kolkata, Chennai, Mumbai and Delhi.
For calculation purposes, the salary considered is 'basic salary'. In case 'Dearness Allowance (DA)' (if it forms a part of retirement benefits) and 'commission received on the basis of sales turnover' is applicable, they too are added to compute the minimum HRA exemption available
Documents required to be maintained to claim HRA tax exemption?
HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner. It is mandatory for an employee to report the PAN of the 'landlord' to the employer( or mention it in IT return) if the rent paid is more than Rs 1,00,000 annually to avail the tax benefit.
Note:
Some special scenarios in claiming HRA tax benefit, such as:
📌 Paying rent to family members: The rented premises must not be owned by the person claiming the tax exemption. So if you stay with your parents and pay rent to them then you can claim that for tax exemption
📌Own a house, but staying in a different city: One can avail simultaneous benefit of deduction available for the home loan against 'interest paid' and 'principal repayment' and HRA in case your own home is rented out or you work in another city.
💡Individuals who don't get HRA but pay rent: There may be some employees who might not have an HRA component in their salary structure. Also, a non-salaried individual might be paying rent. For them, Section 80 (GG) of the Income-tax Act offers help.
The least of the following is available for exemption from tax under Section 80GG:
(i) Rent paid in excess of 10% of total income
(ii) 25% of the total income*
(iii) Rs.5,000 per month
*Under this section, the total income is calculated as gross total income minus long-term capital gains, the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under Sections 80C to 80U, except Section 80GG.
The amount of HRA is required to be disclosed in the ITR under the column allowances to the extent exempt under section 10. section 10(3A) is the relevant section under which the amount of exempt HRA to be shown.
Source : Income tax india, Economic times.
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