House Rent Allowance (HRA), is an amount which is paid by employers to employees as part of their salaries for accommodation. Only salaried person living in rented house can claim HRA tax exemption. Income tax section 10(13A) provides tax benefits towards the payment for rent. Tax exemption calculated based on city of residence, HRA paid, basic salary and actual salary paid by employee. Submit the rent receipt to get tax exemption on rent. HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.
HRA exemptions can be availed only on submission of rent receipts
If you are paying monthly rent more than 8300 rupees, it is mandatory to submit landlord’s PAN card to employer. Get landlord PAN number to get tax exemption if you annual rent is more than 1,00,000 rupees. For the purpose of HRA calculation for tax deduction, the actual amount of HRA exemption will be the lowest of following three,
- Actual rent paid minus 10% of the basic salary
- Actual HRA offered by the employer
- 50% or 40% of the basic salary, according to the city in which the person resides
Let us explore the above formula with an example, Let us consider the case of Aditya varma, a salaried employee living in a rented accommodation in Bangalore for which he pays Rs 25,000 per month.
Actual rent paid by Aditya : 25,000 rupees
Monthly basic salary : 40000 rupees
Actual HRA Paid by employer : 15,000 rupees
Putting this in the formula given above, we calculate 3 values to find the minimum for tax exemption,
Actual rent paid minus 10% of the basic salary = 25,000 – (10% of 40,000) = 21,000
Actual HRA offered by the employer = 15,000
50% of the basic salary = 50% of 40,000 = 20,000
The lowest of these 3 values is 15,000 rupees. This is tax exempted on submitting rent receipt. 15,000 * 12 = 1,80,000 rupees is tax exempted from your salary. If you are in 5 lakhs to 10 lakhs tax bracket, you can save 36,000 rupees in tax.
You can save minimum 1 to 3 times of your monthly rent
- HRA is not applicable if you are living in a self-owned house.
- You can also avail tax benefits of HRA along with a home loan.
- In case you stay with your parents, you are eligible to pay rent to your parents and collect a receipt for HRA claim. However, similar rules don’t allow you to pay rent to your spouse and claim a tax exemption.
HRA tax exemption is not part of 80C (1.5 lakhs). House Rent Allowance falls under Section 10(13A). So submit rent receipt to get maximum tax benefits. Ensure you submit all the required documents such as rent receipt, rental agreement, landlord PAN and landlord declaration to avail the tax exemption.
HRA tax exemption is not part of 80C (1.5 lakhs)
Don’t miss to submit rent receipt to your employer. Employer would be collecting investment proof and HRA proof in month of January. Save on Tax and start investing.