HRA or House Rent Allowance is a component of salary provided by employer
to his employee. If you receive HRA as part of your salary and you
live in a rented accommodation, then you can claim full or partial tax exemption on it.
However, HRA is fully taxable if you don’t live in a rented accommodation.
Calculation of HRA
When calculating tax on HRA, 4 factors are considered in mind:
HRA component of salary
- Rent paid
Location of your rented residence
Exemption on HRA
Tax exemption on HRA is least of the following:
- Actual HRA received
- Actual rent paid reduced by 10% of salary
- 50% of basic salary if the taxpayer is living in a metro city
- 40% of basic salary if the taxpayer is living in a non-metro city
Since the least of the above is exempt from tax, you can ask your employer
to restructure your salary to get maximum tax benefit. If all the factors
mentioned above remain constant then tax exemption on HRA can be calculated
annually but if any factor changes within the relevant Financial Year then
calculation needs to be done on a monthly basis.
Example: Suppose Mr. Pratik lives in New Delhi and earns a basic salary of Rs. 30,000 per month.
The HRA component of his salary is Rs. 15,000 but the actual rent paid by him is Rs. 10,000.
How much exemption can he get?
Solution: To solve this problem, first let us look at the factors affecting HRA calculation.
a. Actual HRA received is (Rs. 15,000 x 12) = Rs. 1,80,000
b. Actual rent paid (Rs. 10,000 x 12) – 10% of salary [(Rs. 30,000 x 12) x 10%] = Rs. 84,000
c. 50% of basic salary [(Rs. 30,000 x 12) x 50%] = Rs. 1,80,000
Rs. 84,000 is the least among the above obtained figures so Mr. Pratik can get Rs. 84,000 exempt.
Frequently Asked Questions about HRA
Can I get tax benefits on HRA along with tax benefits on home loan?
Yes you can claim both tax exemptions together. If you are a home owner paying back home loan
but living in a rented accommodation then you can get tax benefits for both cases.
To claim HRA, whom do I pay rent to?
HRA benefits can be claimed if you pay rent to your landlord, i.e. owner of the property
in which you live. However, the owner can be anyone including your parents. But remember
that the at least 70% of the rent you pay to your parents get added to their taxable income also.
Is my landlord’s PAN mandatory to claim HRA?
If you pay rent in excess of Rs. 1 lakh p.a. then it is necessary to mention PAN details
of your landlord in your tax return to claim tax exemption on HRA.
My employer does not give me HRA. Can I still claim relevant tax deduction?
Section 80GG of Income Tax Act allows tax deduction to the individual even
if he does not get HRA from his employer.
My landlord does not have PAN. How do I claim tax deduction on HRA?
It is necessary to get PAN details of your employer to claim tax benefits on HRA. However,
if your landlord does not have a PAN then you must get a declaration from him regarding the
same. It is better that you get these details (PAN or declaration) before you take place on
rent in order to avoid hassles at the time of filing return.