Salaried individuals, who are living in rented houses, can claim the House Rent Allowance (HRA) to lower their taxes – partially or wholly. The allowance is for expenses related to rented accommodation. If you do not live in rented accommodation, this allowance is fully taxable.
Please note that the tax exemption of house rent allowance is not available in case you choose the New tax regime. from FY 2020-21 (AY 2021-22)
How is Tax Exemption from HRA Calculated?
The deduction available is the least of the following amounts:
- Actual HRA received.
- 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
- Actual rent paid less 10% of basic salary + DA
Can I Claim HRA and Deduction on Home Loan Interest as well?
Yes, you may claim the HRA as it has no bearing on your home loan interest deduction. Both can be claimed.
When Do You Need a Landlord’s PAN?
If you have taken a house on rent and are making a payment in excess of Rs 1 lakh annually – remember to provide the landlord’s PAN. Else, you may lose out on the HRA exemption.
Landlords without a PAN must be willing to give you a declaration as per circular No. 8/2013 dated 10 October 2013. Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making the payment towards rent.
What if My Employer Doesn’t Provide me with HRA?
If you pay rent for any residential accommodation occupied by you but do not receive HRA from your employer, you can still claim the deduction under Section 80GG. Conditions that must be fulfilled to claim this deduction:
- You are self-employed or salaried.
- You have not received HRA at any time during the year for which you are claiming 80GG.
- You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry-on business or profession.
In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. The other property would be deemed to be let out to claim the 80GG deduction.
How to Claim Deduction Under Section 80GG?
The least of the will be considered as the deduction under this section:
- Rs 5,000 per month.
- 25% of adjusted total income*.
- Actual Rent less 10% of adjusted total Income*
*Adjusted Total Income means Total Income Less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).
How to Claim HRA When Living with Parents?
Employees can pay rent to their parents and claim the allowance provided. All they have to do is enter into a rental agreement with their parents and transfer money to them every month. This way employees can make a nice gesture to their parents while saving on taxes. Also, it is important for the Employee’s parents to report the rent paid as income in their income tax returns. If their other income is below the basic exemption limit or if taxable at a lower tax slab, then they can save tax on the family income.
Frequently Asked Questions
When can I claim tax exemption on house rent allowance?
You can claim tax exemption on HRA in a case where you pay rent for your residential accommodation.
How can I claim HRA exemption?
You can claim HRA exemption by submitting proofs of rent receipts to your employer. Alternatively, you can claim the HRA exemption yourself while filing your income tax return.
Can a self-employed individual claim HRA exemption?
A self-employed individual cannot claim HRA exemption. Only a salaried individual having an HRA component in their salary package can claim HRA exemption.
How to claim HRA if not mentioned in form-16?
If HRA is not mentioned in form 16 it means your employer has not provided a separate component of HRA. HRA u/s 10 (13A) can be claimed when a separate component towards HRA is given by the employer. In absence of it, you can claim for rent paid under section 80GG.
How much HRA can be claimed without proof?
Rent receipts are mandatorily required by the employer as proof for claiming house rent allowance deduction.
What happens if HRA is not claimed?
If you have missed submitting the rent receipts and rent agreement to your employer at the time of proof submission, you can claim the HRA deduction while filing ITR. In case you miss to claim the HRA while filing a return, you can file a revised return to correct the error before the end of the assessment year.
What is the maximum limit for HRA?
According to section 10 (13A), An employee can claim HRA deduction maximum up to the actual HRA component received from the employer.
Can I claim both 80GG and HRA?
No, individuals paying rent but do not receive house rent allowance are allowed to claim deduction under section 80GG. Also, the individual, spouse, or children should not own a house property in the place of employment for claiming this deduction.