A Detailed Guide On All Types Of HRA Deductions & How To Avail Them
In recent times, tax exemption aspects have become a crucial component in Income Tax filing. For employed individuals, HRA (House Rent Allowance) is a prominent element of salary structure. It is the compensated amount by an organization to its respective employees to meet the expenses of rent for accommodation. The evaluation of HRA is based on various factors and given above and over basic pay. Importantly, HRA exemption is a vital component and comes under the ambit of income tax exemption. It is an incredible way to reduce an individual’s taxable income. Moreover, for a detailed explanation, you can check here https://www.turtlemint.com/save-tax-on-house-rent-allowance/. Let’s comprehend the different aspects of HRA exemption, such as eligibility, rules, and how to claim HRA deduction.
Eligibility To Claim HRA Deduction
According to Section 10(13A) of the Income Tax, HRA exemption can be facilitated by individuals when they meet the following criteria:
- An individual should be a salaried employee and should receive a house rent allowance as a salary component.
- An individual must have rented accommodation.
- Able to produce credible evidence about paying rent. Further, the rent recipients should contain the beneficiary’s name.
- Likewise, the self-employed can also claim the HRA exemption under section 80GG of the Income Tax Act.
The Basis on Which HRA Exemption is Computed
Principally, the HRA is computed on the basic salary. However, there are several factors along with salary, such as HRA received, actual rent paid, and the location of residency. Therefore, in order to calculate HRA deduction, in all probability, the lowest among the following provisions is taken into consideration:
- The amount received as the house rent allowance by the employer.
- Actual rent paid minus 10% of the basic salary.
- 50% of the basic salary if an individual resides in metro cities or 40% of the basic pay if the person lives in non-metro cities.
Therefore, the HRA is calculated considering these three aspects and claims the lowest as per section 10(13A) of the Income Tax Act for existing HRA exemption. For a better understanding of HRA calculation, let’s consider the following example:
Ms. Divya Sen lives and works in Bangalore. She pays ₹10,000 as rent for accommodation per month. Her monthly salary is ₹40,000, including the following allowances. Here is the detailed break out of the monthly salary:
Basic Pay – ₹25,000
Allowances – ₹5,000
HRA – ₹8,000
PF – ₹2,000
- a) An annual HRA received of 96000 (₹8,000×12 = ₹96,000)
- b) The annual rent she pays is 120000. Actual rent is paid annually minus 10% of the basic pay (₹10,000×12 – ₹48000 = ₹72,000).
- c) Banglore is a non-metro city. Therefore, 40% of the basic salary is ₹1,20,000 (40% x ₹3,00,000 = ₹120000)
So, the maximum HRA deduction Ms. Divya Sen can claim is the lowest among the three, ₹72,000. The remaining HRA allowance, which is ₹48, 000 is taxable under the Income Tax Act.
Crucial Points to Remember For Claiming HRA Exemption
- The allotted house rent allowance cannot exceed 50% of the basic pay.
- An individual claims the benefits of HRA exemption along with a home loan.
- If the annual rent paid is more than ₹1,00,000, submitting the landlord’s PAN card detail is mandatory to claim the HRA exemption. If the homeowner does not have a PAN card, then a written declaration is required duly signed by the landlord.
- The individuals can also claim the HRA exemption even if they are living with their parents. However, it is necessary to show credible rent receipts.
- The metro cities include Delhi, Mumbai, Kolkata, and Chennai for the computation of the HRA exemption process. Excluding these four metro cities, all the cities come under the ambit of non-metro cities.
- Self-employed or other salaried individuals can claim the benefits of HRA exemption under Section 80GG of the Income Tax Act.