HRA – House Rent Allowance – Exemption Rules & Tax Deductions

A guide on how to claim HRA exemption and save taxes

Updated on

Read about the Union Budget 2020 highlights here.
The tax exemption of house rent allowance is not available in case you choose the New tax regime. from FY 2020-21 (AY 2021-22)

Salaried individuals, who live in rented houses, can claim the House Rent Allowance (HRA) to lower their taxes – partially or wholly. The allowance is for expenses related to rented accommodation. If you don’t live in rented accommodation, this allowance is fully taxable.

  1. How is Tax Exemption From HRA Calculated?
  2. Can I Claim HRA and Deduction on Home Loan Interest as well?
  3. When Do You Need Landlord’s PAN?
  4. What if my Employer Doesn’t Provide me With HRA?
  5. Illustration
  6. How to Claim Deduction Under Section 80GG?
  7. How to Claim HRA When Living With Parents?

1. How is Tax Exemption From HRA Calculated?

HRA House Rent Allowance

The deduction available is the least of the following amounts:

a. Actual HRA received;

b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or

c. Actual rent paid less 10% of basic salary + DA

2. Can I Claim HRA and Deduction on Home Loan Interest as well?

Yes, you may claim the HRA as it has no bearing towards your home loan interest deduction. Both can be claimed.

Try out our free HRA calculator to determine your HRA exemption. This calculator shows you on what part of your HRA you have to pay taxes – i.e. how much of your HRA is taxable and how much is exempt from tax.

3. When Do You Need Landlord’s PAN?

If you have taken a house on rent and are making a payment in excess of Rs 1 lakh annually – remember to provide the landlord’s PAN. Else, you may lose out on the HRA exemption. Landlords without a PAN must be willing to give you a declaration refer circular No. 8/2013 dated 10 October 2013.

Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making the payment towards rent.

4. What if my Employer Doesn’t Provide me With HRA?

If pay rent for any residential accommodation occupied by you, but do not receive HRA from your employer, you can still claim the deduction under Section 80GG.

Conditions that must be fulfilled to claim this deduction:

a. You are self-employed or salaried

b. You have not received HRA at any time during the year for which you are claiming 80GG

c. You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.

In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. The other property would be deemed to be let out in order to claim the 80GG deduction.

5.Illustration

Mr. Anwar, employed in Delhi, has taken up an accommodation on rent for which he pays a monthly rent of Rs 15,000 during the Financial Year (FY) 2019-20. He receives a Basic Salary of Rs 25,000 monthly along with DA of Rs 2000, which forms a part of the salary. He also receives a HRA of Rs 1 lakh from his employer during the year.
Let us understand the HRA component that would be exempt from income tax during the FY 2019-20.

Sl No Particulars Amount (in Rs) Amount (in Rs.)
1 Actual HRA received 1,00,000
2 Rent paid (15000 p.m. * 12 months)
minus(-)
10% of {(250 00p.m.*12) + (2000p.m.*12)} i.e.10% of Basic + DA
1,80,000 1,47,600
32,400
3 50% of {(25000p.m.*12) + (2000p.m.*12)}

(50% is considered as the accomodation is in Delhi)

1,62,000
4 Exempt HRA = lowest of 1,2,& 3 1,00,000

Therefore, in the above example, the entire HRA received from the employer is exempt from income tax.

6. How to Claim Deduction Under Section 80GG?

The least  of the will be considered as the deduction under this section:

a. Rs 5,000 per month;

b. 25% of adjusted total income*;

c. Actual Rent less 10% of adjusted total Income*

*Adjusted Total Income means Total Income Less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).

7. How to Claim HRA When Living With Parents?

Let’s understand this with an example. Samiksha works in an MNC in Bangalore. Though her company provides her with HRA, she lives with her parents in their house and not in rented accommodation. How can she make use of this allowance? Samiksha can pay rent to her parents and claim the allowance provided. All she has to do is enter into a rental agreement with her parents and transfer money to them every month.

This way Samiksha can make a nice gesture to her parents while saving on taxes.Her parents will have to show the rent she paid on their income tax returns. However, they can save a lot as a family.

Frequently Asked Questions

When can I claim tax exemption on house rent allowance?
You can claim tax exemption on HRA in a case where you pay rent for your residential accommodation.

How can I claim HRA exemption?
You can claim HRA exemption by submitting proofs of rent receipts to your employer. Alternatively, you can claim the HRA exemption yourself while filing your income tax return.

Can a self-employed individual claim HRA exemption?
A self-employed individual cannot claim HRA exemption. Only a salaried individual having an HRA component in their salary package can claim HRA exemption.

What is the tax liability in case my entire HRA is not tax-exempt?
The balance HRA which is not tax-exempt is payable to the employee after deducting tax at the applicable slab rates.

What is the full form of HRA?
HRA means House rent allowance in income tax. It means the component of salary received towards the rent payment and is allowed as deduction from taxable salary subject to maximum deduction allowed as per the rules.

What is an HRA allowance and how to calculate HRA?
HRA means House rent allowance in income tax. It means the component of salary received towards the rent payment and is allowed as deduction from taxable salary under section 10-13A. HRA exemption is allowed least of the below :

  • Actual HRA received by the employee
  • 40 % of salary for non metro city or 50 % of salary if the rented property is in Metro city like mumbai, delhi, bengaluru , chennai, etc)
  • Actual rent paid less than 10% of salary.

For above calculation , salary would include basic, dearness allowance and fixed percentage of commission.

Who can claim HRA exemption?
Salaried employees who receive house rent allowance as a part of salary and make payment towards rent can claim HRA exemption to reduce their taxable salary wholly or partially.

HRA comes under which section of income tax?
House rent allowance received by an employee is partially or wholly exempt as per the conditions laid out in section 10(13A)

What is HRA and DA?
Dearness allowance is a component of salary towards adjustment for cost of living paid generally to government employees, public sector employees, and pensioners. Dearness allowance is calculated as a percentage of basic salary to cover the impact of inflation.

HRA, house rent allowance is a component of salary paid by big employers towards rent payment by the employee. HRA exemption is allowed least of the below :

  • Actual HRA received by the employee
  • 40 % of salary for non metro city or 50 % of salary if the rented property is in Metro city like mumbai, delhi, bengaluru , chennai, etc)
  • Actual rent paid less than 10% of salary.

For above calculation , salary would include basic, dearness allowance and fixed percentage of commission.

How to claim HRA in income tax return (ITR) ?
The Taxable portion of HRA component should be included as a part of ‘ Salary as per section 17 (1)’. Exempt portion of the HRA component is to be added under heading ‘ allowances to the extent exempt u/s 10 (ensure that it is included in salary income u/s 17 (1) 17(2) 17 (3) ).’
Please note that if you are filing ITR online through cleartax, then the software auto populates the Form 16 component. In such a case, verify the amount auto populated with information in Form 16.

How to claim HRA if not mentioned in form-16?
If HRA is not mentioned in form 16 it means your employer has not provided a separate component of HRA. HRA u/s 10 (13A) can be claimed when a separate component towards HRA is given by the employer. In absence of it, you can claim for rent paid under section 80GG.

How to save HRA?
HRA can be at most claimed as according to the lowest of these three amounts (i) house rent allowance received (ii) 40% (non-metro city) or 50% (metro city ) of the salary (iii) actual rent paid less 10% of salary.
Please note that you can claim HRA if you are residing at your parents owned house provided that you transfer rent to your parents. Please note that your parents will have to report this rent income in their return of income for taxability purposes. In case your parents have income less than basis exemption , no taxability arises in their hands.
Further the benefit of HRA can also be claimed if you own a house and are claiming deduction for principal payment u/s 80C and interest deduction u/s 24. The reason for residing in a rent house should be genuine and valid. This arrangement can be closely monitored by the IT department.

What is an HRA certificate?
HRA certificate is a certificate issued by the government employee for claiming house rent allowance because of the reason of not being able to avail government accommodation in accordance with the prescribed procedure.

How to submit HRA proof for ITR?
Documents like rent receipts, and rent agreement will be required to be submitted to the employer for claiming deduction for house rent allowance . If the payment of rent is more than Rs 1 lakh per annum, then PAN of the house owner will be required to be submitted. On the basis of these proofs, employers would provide deduction for HRA in form 16.

How to declare HRA in cleartax?
While filing return through Cleartax, you can directly upload form 16 and details mentioned in form 16 will auto populate including the HRA exemption.
However if you don’t have form 16, then you can add the exempt portion of HRA as per as calculated on the HRA calculator of Cleartax under tab Income sources> point 2 exempt allowances under section 10.

How much HRA can be claimed without proof?
Rent receipts are mandatorily required by the employer as a proof for claiming house rent allowance deduction.

What happens if HRA is not claimed?
If you have missed to submit the rent receipts and rent agreement to your employer at the time of proof submission, you can claim the HRA deduction while filing ITR.
In case you miss to claim the HRA while filing return, you can file a revised return to correct the error before the end of the assessment year.

What is the maximum limit for HRA?
As according to section 10 (13A) , An employee can claim HRA deduction maximum upto the actual HRA component received from the employer.

Can I claim both 80GG and HRA?
No, individuals paying rent but do not receive house rent allowance are allowed to claim deduction under section 80GG. Also , the individual , spouse or children should not own a house property in the place of employment for claiming this deduction.

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