What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is paid by an employer to employees as a part of their salary to meet the accommodation expenses. Salaried individuals who live in rental premises can claim exemption of House Rent Allowance u/s. 10(13A).
Employees are required to submit the rent receipts to their employers to claim the tax benefit. The employers, in turn, will calculate exempt House Rent Allowance and deduct the same from the employee’s taxable salary. You can know exempt house rent allowance from your Form 16.
From FY 2020-21 onwards, House Rent Allowance Exemption is only available if an employee opts for the Old Tax Regime.
HRA Exemption rules and Calculation
The amount of Exempt HRA will be the least of the following amounts:
- Actual House Rent Allowance received
- Actual rent paid less than 10% of salary
- 50% of salary if you live in a metro city/ 40% in case of a non-metro city
(Here Salary includes – Basic Salary + Dearness Allowance)
The House Rent Allowance calculation formula has been explained below with the help of an example:
Let’s understand with an example:
Raj works in a company in Ahmedabad. He lives in a rented flat. He pays INR. 15,000/month as rent. Following is his salary structure:
|Particulars||Amount (In INR)|
|House Rent Allowance||1,75,000|
|Actual Rent Paid||1,80,000|
The least of the following will be the exempt House Rent Allowance:
- Actual House Rent Allowance = INR 1,75,000
- Actual Rent Paid (-) 10% of Basic Salary = INR 1,30,000 [1,80,000 – 10%(5,00,000)]
- 40% of the Basic Salary = INR 2,00,000 [40%(5,00,000)]
INR 1,30,000 will be exempt from the total House Rent Allowance received and the remaining INR 45,000 (1,75,000-1,30,000) will be taxable.
Use the HRA calculator to find your taxable and tax-exempt House Rent Allowance.
Can a taxpayer claim both deduction on Home Loan & HRA?
Yes, a taxpayer can claim both HRA and deduction on Home Loan for interest and principle component if the specified conditions are met:
|Case||Is the benefit for HRA and deduction on home loan available?|
|You live in rented accommodation while having a home on loan in a different city.||Yes|
|You live in rented accommodation while having a home on loan in the same city due to work/ children’s schooling (genuine conditions).||Yes|
|You have acquired under-construction property on loan and hence live in a different accommodation.||Yes|
What if you don’t receive HRA?
Under Section 80GG, the deduction is allowed to an individual who pays rent without receiving any House Rent Allowance from an employer. Hence, check your Salary Slip to see if you are receiving any House Rent Allowance. If you do, you can’t claim a deduction for rent paid under section 80GG. So you can claim a deduction from total income if you:
- Are paying House rent
- Don’t receive any House Rent Allowance from your employer
- You or your spouse or minor children do not own residential accommodation at the place of employment
- Do not own self-occupied residential accommodation at any other place
If all these conditions are fulfilled, a deduction is available as the least of the following amounts:
- Rent paid less than 10% of the total income
- INR 5,000 per month i.e annually INR. 60,000
- 25% of the total income
(Here total income would be total income less all deductions under chapter VI-A except deduction u/s. 80GG)
The important point to keep in mind is in order to claim deduction u/s. 80GG, the assessee has to file Form 10BA prior to filing the ITR.
No. House Rent Allowance is an allowance and is exempt from Salary Income. House Rent Allowance exemption is allowed u/s 10(13A) of the Income Tax Act. You can know your exempt House Rent Allowance from Form 16 issued by your employer.
You can go for a rental agreement with anyone except your spouse and claim House Rent Allowance. So, if you have a rental agreement with your parents, you can ask for the House Rent Allowance tax benefit from your employer.
Yes, you can. The benefits of House Rent Allowance and deduction for Home Loan interest can be availed simultaneously. You can claim House Rent Allowance for the rent you pay to the landlord.
If the house property is occupied by your spouse, children, and/or your parents, you can claim a deduction for Home Loan interest up to a maximum of INR 2,00,000/-.
If it’s a let-out house property then you can claim a deduction for Home Loan interest without any limit.
An employee needs to submit the PAN of the landlord if the total rental payment for a year exceeds INR 1,00,000. If the monthly rental payment is more than INR 50,000 then the employee needs to deduct TDS at the rate of 5% u/s 194IB and need to file Form 26QC. In the case of the NRI Landlord, an employee needs to deduct TDS on payment and the TDS Return in Form 27Q needs to be filed every quarter. Tenants paying rent to NRI landlords must deduct TDS at 30% before making a payment towards rent.
Salaried individuals can file ITR-1 while claiming exempt House Rent Allowance. However, ITR-2 is required to be filed if income is more than INR 50,00,000.
No, as per primary conditions, you can not claim a deduction on rent paid if you receive an allowance from your employer. In this case, only HRA is allowed as a deduction.
No, you can not claim HRA exemption if you have a Self-occupied house in the same city as you live in a rented property.
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.
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