What is HRA?
HRA or House Rent Allowance is a component of the salary provided by the employer to his/her employee. If you receive House Rent Allowance as part of your salary and live in rented accommodation, and can claim full or partial HRA exemption u/s 10. The HRA is fully taxable if you don’t live in rented accommodation.
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How to Calculate House Rent Allowance?
Your HRA calculation depends on four factors. These factors are as follows:
- HRA component of salary
- Rent paid
- The Location of your rented residence.
HRA Exemption Rules
Tax exemption on HRA is least of the following:
1) Actual HRA received
2) Actual rent paid reduced by 10% of salary
3) The 50% of basic salary if the taxpayer is living in a metro city
4) The 40% of basic salary if the taxpayer is living in a non-metro city
Since the slightest of the above is exempt from tax, you can ask your employer to restructure your salary to get a maximum tax benefit.
Suppose all the factors mentioned above remain constant. In that case, tax exemption on HRA can be calculated annually, but if any factor changes within the relevant Financial Year, the calculation needs to be done monthly.
HRA Exemption Calculation with Example
Suppose Mr Kashyap lives in Mumbai and earns a basic salary of Rs 30,000 per month. The HRA section of his salary is Rs 15,000, but the actual rent paid by him is Rs 10,000. How much exemption can Kashyap get?
To solve this problem, let us look at the factors affecting HRA calculation.
a) Actual HRA received is = (Rs 15,000 x 12) which is equal to Rs 1,80,000
b) Actual rent paid is (Rs 10,000 x 12) – 10% of salary [(Rs 30,000 x 12) x 10%] = Rs 84,000
c) 50% of basic salary is [(Rs 30,000 x 12) x 50%] = Rs 1,80,000
Rs 84,000 is the minimum among the above obtained figures so Mr Pratik can get Rs 84,000 exempt.
[ Try: HRA Exemption Calculator ]
How can H&R Block help you?
Just like tax exemption for HRA under section 10, there are several other tax saving provisions covered under the Income Tax Act. Still, you might fail to claim the tax benefits in the absence of proper knowledge and procedures. So, you should take the help of tax experts for this job. Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. You can either use our intuitive tax filing platform to file your tax return easily or let our tax experts file it for you. We have a team of in-house tax experts who can file your tax returns accurately while giving you maximum tax benefits.
People also ask about the House Rent Allowance
- Can I get tax benefits on HRA along with tax benefits on the home loan?
A. Yes, you can claim both tax exemptions together. If you are a homeowner paying back a home loan but living in rented accommodation, then you can claim the tax benefits for both cases.
To claim HRA, who do I pay rent ?
A. HRA benefits can be claimed if you pay rent to your owner, i.e. owner of the property you live in. The owner can be anyone, including your parents. But remember that at least 70% of the rent you pay to your parents get added to their taxable income also.
Is my owner’s PAN mandatory to claim HRA?
A. If you pay rent above Rs 1 lakh p.a., it is necessary to mention the PAN details of your landlord in your tax return to claim tax privilege on HRA.
My organization does not give me HRA, can I still claim the relevant tax deduction?
A. Section 80GG of the Income Tax Act allows a tax deduction to the person even if he does not get HRA from his employer.
My owner does not have PAN. How do I claim a tax deduction on HRA?
A. It is necessary to get the PAN details of your employer to claim tax benefits on HRA. However, if your owner does not have a PAN, you must get a declaration from him. You should get these details (PAN or declaration) before you take place on rent to avoid hassles when filing the return.
How to claim HRA when living with your parents?
A. Let’s discuss this with the help of an example:
Let’s assume that you work at an MNC in Mumbai. You get HRA as a part of your salary, but you don’t live in rented house. Instead of that, you live with your parents in their house. So can you still claim HRA?
You can do so by obtaining into a rental agreement with your parents. Using this way, you can pay rent to your parents and claim the HRA benefits. However, your parents should have to show this rent as 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.