For many employees, House Rent Allowance (HRA) is a part of their salary structure. However, like a normal salary, HRA is not taxable it is partially taxable. However, a part of HRA is exempted under Section 10 (13A) of the Income-tax Act, 1961 under several conditions.
However, if you are not living in any rented apartment but still you are getting HRA then it is taxable. It depends on the following condition.
HRA is fixed but can be discounted through a special agreement between the employee and the employer.
Features of House Rent Allowance (HRA)
- HRA is a renting allowance provide to an employee living in the workplace to give his/her rent easily.
- Tax benefits of House Rent Allowance are available under Section 10 of the Income Tax Act, 1961.
- HRA exempt rent to be paid 10% of basic salary or 50% of basic salary for Metro city employee and 40% of basic salary for non-metro city or total amount received as HRA; Whichever is lesser.
- Its primary use is to help employees with tax benefits towards payment for living each year.
- Employees need to show rent receipts and the rent agreement to claim HRA exemptions.
- Employees will also get exemptions if they are giving rent to their family members.
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HRA and the 2020 Union New Tax Regime
- The Union Budget 2020 introduced a new tax regime.
- This provided an option for individuals to choose the old tax system with exemptions or the new tax regime without some exemptions.
- So, the tax benefit of house rent allowance will be taken only by the persons opting for the old tax regime.
The eligibility criteria for obtaining HRA exemption
- The person must be a salaried employee.
- Their salary structure has an HRA component.
- He should live in rented accommodation.
HRA Exemption Rule and Regulations for Salaried Employees
- The House Rent Allowance is given to the employee by the employer.
- If a person is living in a metro city 50 % of his/her salary is eligible for HRA tax exemption.
- 40 % salary of an employee is eligible for HRA exemption if he/she is living in a non-metro city.
- Actual rent paid by the employee for the residence every month minus 10% of the basic salary.
Conditions in which an Employee can Claim Both HRA and Home Loan Interest Benefits
- If someone owns a house in another city and stays in a rented apartment in another city.
- If the house is under construction then he/she can claim a deduction for HRA and when the house will get ready the person will be eligible to claim tax benefits on the total interest paid up to the date of completion of the house.
- If a person owns a house but unable to reside in that house because it is far away from his/her workplace that’s why he/she is living in a rented apartment near its workplace. However, the distance between your own house and place of work should be at least 35 km”
- When an employee lives in a rented apartment and rents his/her own house.
How to Calculate HRA under Section 10(13a)
- Actual HRA received.
- 40% of salary (50% of the salary if the rented property is in Metro City i.e. Mumbai, Delhi, Chennai, or Kolkata)
- Actual rent paid less than 10% of salary.
Documents that are Required to Claim the House Rent Allowance (HRA) Related Tax Exemptions
- If the rent paid during the given financial year is more than Rs 1 lakh. The employee should have provided his/her PAN card information and a copy of the landlord owner to claim the HRA tax exemption.
- Address of rented apartment.
- Pan card detail of the landlord.
- Receipt of rent
- A revenue stamp.
- Photocopy of the rent agreement.
- A single rent receipt can be used for three months. Hence, you only need four rent receipts per year to claim HRA.
HRA Tax Exemptions Under Section 80 GG
- 80 GG of the Income Tax Act provides tax exemptions for the tax expenditure made towards the rent of the house.
- However, the tax exemption under this section is available when the employee is not getting any other exemption under any other section of the Income-tax (IT) Act.
- Employees who get the benefit of HRA are subject to a different set of rules under section 10(13a)of the Income Tax.
- If you are a self-employed professional or independent contractors can claim the Exemption of House Rent Allowance (HRA) for the spending they make towards paying the rent of the house under section 80 GG.
Deductions Under Section 80 GG
- You should be an individual or Hindu United Family (HUF). A company cannot claim house rent deductions.
- Both the self-employed and the salaried employees can claim rent-related deductions if they are not receiving any exemptions under section 10-13A.
- You should not be receiving any HRA benefits in your salary.
- Need to fill and submit form 10BA to declare that you are not claiming the benefit of Self-Occupied Property on a house in any other location or in the same location as you are employed.
- If your rent paid is more than Rs. 1 lakh per year, you need to submit the PAN Card of the owner of the house that you are living on rent in.
- You can claim rent even if the house you are renting out is semi-furnished or fully-furnished.
- 25 % from your gross total income.
FAQs Related to Exemption of House Rent Allowance (HRA)
- How do I claim HRA if I stay in my home?
If you are living in your own house, then an HRA deduction is not available for you.
- Is HRA exempt from tax?
Not fully but partially. It depends on the condition.
- What is the maximum HRA I can claim?
The maximum HRA you can claim is the actual HRA received. However, HRA calculation is done based on-
- Actual HRA received,
- 50% of salary,
- Excess rent paid over 10% of the annual basic salary.
Can I pay rent to my wife and claim HRA?
Yes, you can pay rent to your wife to claim an HRA deduction as per the Income Tax Act, 1961.
- Is HRA exemption available for AY 2020 21?
This benefit is available for salaried people and pensioners.
- How do I claim HRA exemption while filing?
The HRA exemption can be claimed by mentioning the amount in the declaration form provided to you by your employer (boss) at the beginning of the monetary year.
If the employee is unable to make the same claim through the employer, you can claim the HRA by filing your tax return using the ITR-1 form.