HRA:House Rent Allowance
Did you know there are benefits to paying rent as a salaried employee in India. House Rent Allowance (HRA) is an exemption from the government
What is HRA?
House Rent Allowance is an allowance paid by employers to their employees to cover the housing costs associated with renting a home. It is a crucial part of a person’s pay and both salaried and self employed individuals are eligible for HRA.
Is HRA taxable
Since House Rent Allowance is a part of your salary it is fully taxable, but you can claim deduction partially or wholly under section 10(13A) if you live in a rented accommodation. This allowance is fully taxable if you do not live in a rented house.
HRA for salaried Individuals
HRA can be a major chunk of their salary structure. The House Rent Allowance is calculated based on the basic salary of the employee, and actual amount of rent paid and the city they reside in. The company’s policy also plays a major role in deciding the HRA.
HRA for self employed
Self employed individuals do not have provision for House Rent Allowance exemption, but they can claim exemption under section 80 GG of Income Tax Act.
How to calculate HRA?
The lowest of these can be claimed as House Rent Allowance:
- Actual House Rent Allowance received
- 50% of [basic salary + DA] for those living in metro cities (Delhi, Kolkata, Mumbai or Chennai)
- 40% of [basic salary + DA] for those living in non-metros
- Actual rent paid (-) 10% of [basic salary + DA]
Documents Required to Claim Tax Exemption on HRA
The following documents need to be submitted to claim tax exemption on House Rent Allowance:
Proof of rent payment: The rent receipts are the main documents that have to be submitted at the time of claiming exemption for HRA.
Bank Statements: In case you do not have the rent receipts you can provide bank statements.
PAN card of your landlord: The PAN Card details of the landlord/landlady are required to be provided as well in the cases where the annual rent of the housing unit exceeds the mark of Rs.1 lakh.
Self-declaration form: If the landlord/landlady do not have a PAN card, he or she can provide a self-declaration stating the same.
Can you claim both HRA and deduction on home loan interest?
Yes you can claim both deduction on interest paid towards home loan and exemption on House Rent Allowance. There are two cases when this is allowed-
- The rented and owned house is located in different cities- you can claim HRA if you had to shift to another city because of a job.
- The rented house and the owned house are located in the same city- In this case you can claim deduction only with valid reasons, like your owned house being located very far from your workplace or office.
Conclusion
HRA is a tax benefit for rent-paying employees. It’s taxable but can be partially exempt under certain conditions. Self-employed individuals can claim exemptions differently. Both House Rent Allowance and Home loan interest deductions can be claimed together in specific situations. Understanding these nuances is key to optimizing tax planning.
