House Rent Allowance(HRA) :
Meaning, Who can claim, Taxability, Exemption, Calculation with Example

What is HRA?

HRA means house rent allowance. It is the amount paid by the employer to the employees to help them meet the costs of living in a 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 the 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 should be noted that the self-employed individuals can also claim tax exemption for the rent paid under Section 80GG of the Income Tax Act.

Who can Claim HRA?

You can claim HRA exemption for the period during which you stayed in a rented accommodation if the following conditions are fulfilled:

The tax benefits related to HRA are available only to salaried individuals. A self-employed person cannot take advantage of this exemption.

The CTC or salary package consists of various components like basic salary, allowances, perquisites, etc. To take advantage of this exemption, you must ensure that HRA is included in your CTC.

This exemption can only be claimed if you are staying in a rented accommodation i.e. you are actually paying rent. No tax benefit is available if you are residing in a self-owned house as one cannot pay rent to oneself.
You’re probably wondering…If you’re living in your parent’s house, can you claim this exemption by paying rent to your parents? The answer is yes. You can claim the exemption by paying rent to your parents. However, your parents need to show rental income received from you in their income tax return. Also, it is suggested that you pay the rent via Banking Transfer and execute the Rent agreement for the same.

Got further queries? Contact File My Tax online for expert assistance.

You have to inform your employer about the rent paid and submit your rent receipts.
• If annual rent exceeds Rs. 1,00,000 then landlord’s PAN is to be disclosed.

Many times, it’s observed that companies do not give HRA exemption in Form 16 due to unavailability of complete details.
The best part…?
If your HRA claim has not been considered in form 16, then you can directly claim the exemption in your IT return.
Our experts are here to help you claim all the available tax exemptions and deductions & file your IT return in a hassle-free manner.

How much HRA exemption is available under the income tax act?

• Salary (Basic salary + DA)
• HRA component of the salary
• Rent paid and
• Location of your rental accommodation.

• The total amount of HRA received
• 50 percent of salary (Basic salary + Dearness Allowance) if living in metro cities or 40 percent for non-metro cities
• Excess of rent paid annually over 10% of annual salary (Basic salary + DA)

Experts’ advice to consider these points in the salary structure to avail maximum tax benefit. You can also use our free HRA calculator tool to compute the HRA exemption amount on your salary. The HRA tax exemption can be calculated either

• Annually or
• Monthly
The annual calculations can be done if all factors remain constant throughout a financial year. In case your salary structure or rent amount has changed, then the calculation needs to be done on a monthly basis.

How is the HRA exemption calculated?

Meet Mr.Modi, with a

• Monthly basic salary of Rs 30,000
• He receives HRA of Rs 14,000 and
• Pays Rs 16,000 rent for an apartment
• In a metro city

To avail HRA benefit, the least of the following amount (yearly) will be exempted for FY 2019-20 or FY 2020-21 (under the old tax regime), rest is taxable:

*50% because Mr modi lives in a metro city otherwise this would have been 40% only. In the above calculation, the sum of Rs 1,56,000 being excess of rent paid annually over 10% of annual salary (Basic salary + DA) comes out to be least amongst the above three indicators. Therefore, the amount exempted u/s 10(13A) shall be Rs. 1,56,000 and taxable income will be the balance amount of Rs 12,000 i.e. total HRA - exempted HRA (1,68,000-,1,56,000)

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:

1. Calculate the amount eligible for HRA exemption as explained above, you may also take help of our free HRA calculator.
2. Subtract the calculated amount from your Gross salary income.
3. Mention this income in the ITR

However, it is suggested to provide the required information timely in the income declaration form at the beginning of the year. This will save your time and money.

A Note of Caution: On providing fake rent receipts in the name of parents, spouse or other close relatives, you may fall into trouble. The Income Tax Department shall disallow fake HRA exemptions. So, be aware and claim the correct amount only. The below image will help you have a quick look on the provisions of HRA :

Conclusion

A salaried employee must not miss an opportunity to claim HRA tax exemption, as this is one of the best legal ways to save tax. Make sure to keep all authentic pieces of evidence. To be on a safer side, opt for money transfer through a bank account as it is difficult to substantiate rental payments made in cash.The amount of exemption is computed as per sec 10(13A) of Income Tax Act. If you find it troublesome to calculate the amount of exemption, then use File My Tax online’s accurate and free HRA calculator.