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HRA or house rent allowance is the most common allowance received by the salaried. Those who live on rent can maximize on saving tax by claiming a deduction for HRA from the salary.
However many salaried or self-employed individuals stay with their parents. Are you unsure about how to claim HRA if you live with your parents? Those who live with their parents, can pay rent to their parents and save tax on HRA.
Let’s find out how.
Example: 22-year-old Aditya lived in Dwarka, New Delhi with his parents.
His office was in Gurgaon and he commuted daily to his office from Dwarka.
Aditya had recently started working, and his employer asked for tax saving declarations for FY 2018-19 to calculate TDS on salary.
Aditya’s colleagues who lived in Gurgaon in PG accommodation were submitting rent receipts to claim HRA.
HRA is paid to them as part of their salary. However, Aditya is unsure if he can claim HRA since he lives with his parents.
This is the detail of salary earned by him.
| Basic Salary | 3,00,000 |
| HRA | 1,50,000 |
| Special Allowance | 1,65,000 |
| Total | 6,15,000 |
| Less : Standard Deduction | 40,000 |
| Total Taxable Income | 5,75,000 |
| Total tax | 27,500 |
| Cess @ 4% | 1,100 |
| Total Tax Payable | 28,600 |
Now, using ClearTax’s HRA calculator, let’s find out how much HRA will be exempt if Aditya decides to pay rent to his parents.
| HRA exemption calculation | Case 1 | Case 2 | Case 3 |
| A. Rent paid | 12,000 | 12,500 | 13,000 |
| B. HRA per month | 12,500 | 12,500 | 12,500 |
| C. 50% of the basic salary* | 12,500 | 12,500 | 12,500 |
| D. Actual rent paid – 10% of the basic salary | 9,500 | 10,000 | 10,500 |
| E. HRA exempt portion(Least of the B, C & D) | 9,500 | 10,000 | 10,500 |
| F. HRA taxable portion | 3,000 | 2,500 | 2,000 |
| Revised Taxable Salary | |||
| Basic Salary | 3,00,000 | 3,00,000 | 3,00,000 |
| Taxable HRA | 36,000 | 30,000 | 24,000 |
| Special Allowance | 1,65,000 | 1,65,000 | 1,65,000 |
| Total salary | 5,01,000 | 4,95,000 | 4,89,000 |
| Less:Standard Deduction | 40,000 | 40,000 | 40,000 |
| Total taxable salary | 4,61,000 | 4,55,000 | 4,49,000 |
| Total tax | 10,500 | 10,250 | 9,950 |
| cess @ 4% | 422 | 410 | 398 |
| Total Tax Payable | 10,972 | 10,660 | 10,348 |
| Tax Saved | 17,628 | 17,940 | 18,252 |
However, rent paid to Aditya’s father will have to be included in his father’s total income.
Let’s take Case 1, where Aditya decides to pay rent to his father, a sum of Rs 12,000 per month. His father’s rental income is Rs 1,44,000 for the whole financial year. Besides this income, his father has an interest income of Rs 3,00,000. His father is 65 years old.
Let’s find out the taxable income of Aditya’s father, before receiving rent and after receiving rent from Aditya.
Income tax calculation of father with and without rental income.
| Taxable Income of Aditya’s father | With rental income | Without rental income | |
| Interest income | 3,00,000 | 3,00,000 | |
| Rental income | 1,44,000 | ||
| Less: taxes paid | 3,000 | ||
| Less: 30% deduction | 42,300 | 98,700 | – |
| Total taxable income | 3,98,700 | 3,00,000 | |
| Total tax | 4,935 | ||
| Cess | 197 | – | |
| total tax payable | 5,132 | – |
Total tax saved as a family = Rs 17,628 less Rs 5,132 = Rs 12,496
If you are not able to submit the rent receipts in time to your employer and your employer deducts TDS on HRA, you’re still covered. HRA exemptions can be claimed at the time of filing your income tax return. You can adjust your total taxable salary with the HRA exemption amount while filing your return on ClearTax. Do remember to keep your proofs (rent receipts and rent agreement) safe, in case the assessing officer asks for them later.
HRA – House Rent Allowance – Exemption Rules & Tax Deductions
5 things you must know about the most common allowance – HRA
HRA calculator
Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.
Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.
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Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.
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