All About HRA
HRA stands for House Rent Allowance which is basically a part of the salary provided to an employee by his employer in case if he is residing in rented accommodation. The HRA exemption can only be claimed if you are residing in rented accommodation.
No other allowances like special allowance are added into your salary for computing the tax-exempted on the HRA amount.
House rent allowance (HRA) is one of the basic components of your salary. However, many of us are not familiar with the rules that help us to save tax on them. If you are a salaried employee who is residing in a rented apartment, then you should always have an acute knowledge about how to use HRA to reduce you then here’s how you can use HRA to reduce your tax liability.
How to Calculate the Tax-exempted HRA Amount?
The amount of HRA that your employer avails from you is not fully exempted from tax. The tax-exempt portion of the HRA is basically a minimum of the following:
a) Actual HRA availed from an employer
b) 50% of the salary if the apartment is located in any of the metropolitan cities namely Delhi, Bangalore, Mumbai, Chennai, Kolkata) or else 40 % for other cities.
c) Excess rent paid annually over 10% of the annual income.
Here ‘Income’ means the basic salary, the DA (Dearness Allowance) if it forms a part of the retirement benefits and commission received is on the basis of the turnover percentage. No other allowances like the special allowance are added into your salary for computing the tax-exempted HRA amount.
For example, assume that you live in Bangalore and pay a monthly rent of Rs 12,000. Your basic monthly salary being Rs 30,000
and you get a monthly House Rent Allowance of Rs 15,000. The tax-exempted HRA amount will be the lowest for the following cases:
|Actual HRA Received||Rs 1.80 Lakh (Rs15,000*12)|
|50% of the salary||
Rs 1.80 Lakh (Rs 30,000*12*50%)
|Excess Rent paid over 10% of the annual salary||Rs 1.80 lakh [(Rs12,00*12)-(10%*Rs 30,000*12)](Lowest Amount)|
|Least of the amount Exempted||Rs 1.08 lakh|
The least amount is mentioned in the above table which says that the amount above Rs 1.08 lakh is exempted from the tax. Rest of the amount received will be taxable. Hence, Rs 72 Thousand (Rs 1.80 lakh minus Rs 1.08 lakh) will be taxed depending on your income slab.
Claiming for the Benefits:
To avoid more of the TDS getting deduced from your salary, you need to provide your employer with the rent agreement and the rent receipts. If your annual rent payment is above Rs 1 lakh, then you are required to present your landlord’s PAN also to your employer.
However, if you have forgotten to submit your rent receipts/rent agreement to your employer, then you can claim for the benefits at the time of filing your Income Tax returns. Therefore it is always advised to keep the rent payment and proof receipts as you can any time be asked by the Income Tax department to provide it to authenticate your claim.
Special Cases when you can Claim for HRA:
If you Pay Rent to your parents
If you are staying with your parents and pay monthly rent to them, then you are eligible to claim the tax-exemption on the House Rent Allowance. Experts also suggest that it is often advisable to have documental evidence in the form of rent receipts, financial transactions and rental agreement to avoid the rejection of the claim by the tax department. There have been certain cases where the Income Tax department has rejected the claims because of no genuine transactions proofs.
If you have a House of Own but Stay in a Different city
Even if you own a house of your own but stay in a different city due to your job requirements then also you are completely eligible to claim for an HRA benefit if you live in a rented property.
In Case when you are not eligible to claim the HRA Amount
If you receive HRA but live in your own accommodation, then you cannot claim the due HRA exemption advantages. The entire HRA amount received will be taxable in your hands.