House Rent Allowance (HRA) - What is House Rent Allowance, HRA Exemption And Tax Deduction

House Rent Allowance (HRA) is an exemption in the Income Tax Act that can help lower  taxes – partially or wholly. This allowance is for expenses related to rented accommodation. If you don’t live in a rented accommodation, this allowance is fully taxable.

Please note that 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) 
 

 

What is HRA (House Rent Allowance)?

House Rent Allowance (HRA) is a component of an employee's salary that may be subject to partial or full tax deductions under Section 10(13A) of the Income Tax Act. The calculation of HRA is influenced by several factors, which are as follows:

• Salary
• Rent paid
• HRA receivable by the employee
• City of residence of employee

HRA for Self-Employed Individuals

Individuals who are self-employed can also avail of deductions and tax exemptions towards House Rent Allowance (HRA). They can claim these benefits by utilizing Section 80 GG.

HRA for Salaried Individuals 

Section 10 (13A), rule number 2A of the Income Tax Act allows salaried individuals to claim exemptions for House Rent Allowance (HRA). As this allowance is a significant part of an individual's salary, it is important to follow the company's policies regarding the claiming of HRA.

How is Tax Exemption From HRA Calculated?

The deduction available is the least of the following amounts:

• Actual HRA received
• 50% of [basic salary + DA] for those living in metro cities (Delhi, Kolkata, Mumbai or Chennai)
• 40% of [basic salary + DA] for those living in non-metros
• Actual rent paid (-) 10% of basic salary + DA

HRA Calculator

Can I Claim HRA and Deduction on Home Loan Interest?

Yes, you may claim the HRA as it has no bearing on 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 exempt from tax.

When Do You Need a Landlord’s PAN?

If you have taken a house on rent and are making a payment of over 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 sign a self declaration stating he does not have a PAN, as per 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.

What If I Don’t Receive an HRA?

If you pay rent for living in a residential accommodation but do not receive an HRA from your employer, you can still claim the deduction under Section 80GG. Conditions that must be fulfilled to claim this deduction:

1. You are self-employed or salaried
2. You have not received HRA at any time during the year for which you are claiming 80GG
3. 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.

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

Illustration

Mr Anwar, employed in New Delhi, has taken up an accommodation on rent for which he pays Rs.15,000 per month during the Financial Year (FY) 2021-22. He receives a basic salary of Rs.25,000 monthly and DA of Rs.2,000, which forms a part of the salary. He also gets an 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 FY 2021-22. As per the given data, calculate the following:

• HRA received – Rs.1 lakh
• 50% of basic salary and DA – Rs.1,62,000 (50%*(Rs 25,000+Rs 2,000)*12 months)
• Rent paid minus 10% of salary- Rs.1,47,600

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

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. She has to enter into a rental agreement with her parents and transfer money to them every month. Also, Samiksha’s parents need to report the rent she paid as income in their income tax returns. If their other income is below the basic exemption limit or taxable at a lower tax slab, they can save tax on the family income.

How to Claim Deduction Under Section 80GG?

The least of the following will be exempted from tax:

• Rs.5,000 per month;
• 25% of adjusted total income*;
• Actual rent should be less than 10% of adjusted total income*

*Adjusted total income is calculated as below:

Total income minus (i) long-term capital gain minus (ii) short-term capital gain under Section 111A minus (iii) income under Section 115A or 115D minus (iv) deductions 80C to 80U (except deduction under Section 80GG).

Frequently Asked Questions

When can I claim tax exemption on house rent allowance?

You can claim tax exemption on HRA if you pay rent for your residential accommodation.

How can I claim an HRA exemption?

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

I am a self-employed individual. Can I claim an HRA exemption?

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

What is the tax liability in case my entire HRA is not tax-exempt?

The employer deducts TDS at the applicable tax slab rates on balance HRA, which is not tax-exempt. 

Who can claim HRA exemption?

Salaried employees who receive house rent allowance as a part of salary and pay rent, can claim HRA exemption to reduce their taxable salary wholly or partially.

Which section of the income tax does HRA come under?

House rent allowance received by an employee is partially or wholly exempt as per the conditions laid out in Section 10(13A).

What are HRA and DA?

Dearness allowance is a component of salary towards adjustment for living costs 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 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 a non-metro city or 50% of salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai
• Actual rent paid should be less than 10% of salary.

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

How to claim HRA in the Income Tax Return (ITR)?

The taxable portion of the HRA component should be included as a part of ‘Salary as per Section 17(1)’. An exempt portion of the HRA component is to be added under the 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 file ITR online through Clear, 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, that means your employer has not provided a separate component of HRA. HRA u/s 10(13A) can be claimed when the employer gives a separate component towards HRA. In the 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 

1. Actual house rent allowance received 
2. 40% (in non-metro city) or 50% (in metro city) of the salary 
3. Actual rent paid less than 10% of the salary.

Please note that you can claim HRA if you reside at your parents’ house, provided that you transfer the rent to your parents. In this case, your parents will have to report this rental income in their return of income for taxability purposes.  

If your parents have income less than the basic exemption, they are not liable to pay taxes. 

Further, the benefit of HRA can also be claimed if you own a house and are claiming a deduction for principal payment u/s 80C and interest deduction u/s 24. The reason for residing in a rented house should be genuine and valid. The IT department can closely monitor this arrangement.

What is an HRA certificate?

An HRA certificate is a certificate issued by the government employee for claiming a house rent allowance for not being able to avail of a government accommodation according to the prescribed procedure. 

How to submit HRA proof for ITR?

Documents like rent receipts and rental agreements must be submitted to the employer to claim a house rent allowance deduction. If the payment of rent is more than Rs 1 lakh per annum, then the PAN of the landlord must be submitted. Based on these proofs, employers will provide exemption for HRA in Form 16.

How to declare HRA via ClearTax?

While filing returns through ClearTax, you can directly upload Form 16. The details mentioned in Form 16 will auto-populate, including the HRA exemption. However, suppose you don’t have Form 16. In that case, you can add the exempt portion of HRA under the tab Income sources > point 2 exempt allowances under Section 10.

Use HRA exemption calculator of ClearTax.

How much HRA can be claimed without proof?

It is mandatory to submit rent receipts or a copy of the rental agreement as proof for claiming a house rent allowance deduction.

What happens if proof for HRA exemption is not submitted to the employer or HRA deduction is not claimed in ITR?

If you missed submitting rent receipts or a copy of the rental agreement to your employer at the time of proof submission, you can claim the HRA deduction while filing ITR.

In case you miss claiming the HRA while filing your return, you can file a revised return to correct the error before 31st December of the assessment year or completion of assessment, whichever is earlier.

What is the maximum limit for HRA?

According to Section 10(13A), an employee can claim an HRA deduction maximum up to the actual HRA component received from the employer.

Can I claim both 80GG and HRA?

Individuals paying rent but not receiving house rent allowance can claim a deduction under Section 80GG. Also, the individual, spouse or children should not own a house property in the place of employment, business or location where the individual ordinarily resides for claiming this deduction. 
 

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