House Rent Allowance and its Exemption

House Rent Allowance (HRA) is an essential asset of the Income under the head Salary (IHS) granted by the company to the employee for a leased accommodation. Its fundamental use is to assist employees with tax privileges towards the payment for accommodations each year. House Rent Allowance

HRA falls under Section 10 of the Income Tax Act, 1961, and the exemption can be commanded partially or wholly.

The Union Budget 2020 presented the new tax management. It provided the people with an alternative to choose either the old tax regime with exclusions or the new tax regime without specific exemptions. So, the tax compensation of house rent allowance (HRA) will be availed only by the employees opting for the former tax regime.

Eligibility for Availing HRA Exemptions

The qualification standards to avail House Rent Allowance exemption is that the person:

  • Should be a salaried employee.
  • He has the HRA element in his salary structure.
  • Should be residing in rented accommodation.

HRA Exemption Rule

The HRA exemption limit is the most economical of the following 3 requirements:

  • The exact rent paid minus 10% of the basic wage + DA (Dearness Allowance)
  • If an employee stays in a cosmopolitan city, 50% of the basic payroll is 40% if he resides in a town or non-metro city.
  • The cumulative amount collected as HRA from the employer.

Calculation of HRA Exemption

Consider the situation of a person, Mr. Aditya:

He makes ₹ 30,000 as a basic monthly income. Besides, he gets a Medical allowance of ₹ 2,500, other endowments of ₹ 2,500, and an HRA of ₹ 15,000. He has a rent of ₹ 12,000 for accommodation in a metropolitan city.

a) Actual HRA acquired,

15000*12=180,000

b) Exact rent paid yearly over 10% of annual income

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 most concise value received out of the 3 methods. Consequently, the value of HRA exempt will be ₹ 1,08,000.

Documents Required for HRA

An employee will have to present the rent receipts and the rent contract to profit from the house rent allowance. If the rent given by him tops ₹ 1,00,000 annually, the landlord’s PAN Card or form 60 specifications, along with the rent receipts and rental contract, will have to be submitted.

Special Cases to Claim HRA Benefit

1. If the landlord is a family member

An individual can profit under HRA if he/she deposits the rent to a family member, but the person should not be an owner of that accommodation. If an individual resides with his parents in their house and has the associated paperwork to show the rent paid, he can claim the privilege.

2. Own a house but lives in a separate city

If an individual is operating in a separate city, he can claim the tax gain for interest paid on the home loan and HRA for the leased accommodation, granted he has the necessary documents to back his case.

FAQs about House Rent Allowance

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. Check the Dialabank site to know all about the House Rent Allowance.

How to claim HRA without the PAN Card of the 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 to 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? House Rent Allowance

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 am 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, you can claim HRA benefit only if you live in a rented property.

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

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

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% or 50% 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 the total rent claimed by both must not exceed ₹ 20,000.

Menu