HRA or House Rent Allowance is a component of the salary provided by the employer to his/her employee. If you receive HRA as part of your salary and you live in a rented accommodation, then you can claim full or partial HRA exemption u/s 10. However, HRA is fully taxable if you don’t live in a rented accommodation.
Your HRA calculation depends on four factors. These factors are as follows:
2. HRA component of salary
3. Rent paid
4) Location of your rented residence
Tax exemption on HRA is least of the following:
1) Actual HRA received
2) Actual rent paid reduced by 10% of salary
3) 50% of basic salary if the taxpayer is living in a metro city
4) 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.
Let’s understand calculation of HRA with the help of an 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.
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.
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.
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.
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.
Let’s understand this with the help of an example:
Let’s assume that you work at an MNC in Pune. You get HRA as part of your salary but you don’t live in a rented accommodation. Instead, you live with your parents in their house. So can you still claim HRA?
You can do so by getting into a rental agreement with your parents. In this way, you can pay rent to your parents and claim HRA benefits. However, your parents will have to show this rent as their income in their ITR form. If their total income is within the exemption limit as per Income Tax slab rates then you and your family can save some money.