House Rent Allowance (HRA): Rules, Exemptions, and Deductions

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By Hiral Vakil on February 12, 2020

What is HRA?

House Rent Allowance (HRA) is paid by an employer to employees as a part of their salaries. It is paid to meet the accommodation expenses. Salaried individuals who live in rental premises can claim exemption of HRA. Employees are required to submit the rent receipts to their employers to claim the tax benefit. The employers, in turn, will calculate exempt HRA and deduct the same from employee’s taxable salary. You can know exempt HRA from your Form 16.

How to calculate exempt HRA?

The least of the following will be deducted from salary as exempt HRA

  • Actual HRA from employer
  • Actual rent paid less 10% of basic salary
  • 50% of basic salary if you live in a metro city or 40% of the basic salary if you live in a non-metro city.

Delhi, Mumbai, Chennai and Kolkata are the metro cities for HRA exemption.

Example: Raj works in a company in Kanpur. He lives in a rented flat. He pays INR. 15,000 /month as rent. Following is his salary structure.

Particulars Amount (In INR)
Basic Salary 5,00,000
HRA 1,75,000
LTA 25,000
Other Allowances 12,500
Gross Salary 6,15,000
Actual Rent Paid 1,80,000

The least of the following will be the exempt HRA:

  1. Actual HRA: INR. 1,75,000
  2. Actual Rent Paid (-) 10% of Basic Salary: INR. 1,30,000 [1,80,000 – 10%(5,00,000)]
  3. 40% of the Basic Salary: INR. 2,00,000 [40%(5,00,000)]

INR. 1,30,000 will be exempt HRA. Hence taxable HRA will be INR. 45,000 (1,75,000-1,30,000).

What if I don’t receive any HRA?

Under Section 80GG, a deduction is allowed to an individual who pays rent without receiving any HRA. So you can claim a deduction from total income if…

  • You are paying House rent.
  • You 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.
  • You 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…

  • Rent paid minus 10% of the total income.
  • INR. 5000 per month i.e annually INR. 60,000.
  • 25% of the total income.

The important point to keep in mind is that deduction under Section 80GG is not allowed to an individual who receives HRA from an employer. Hence, check your Salary Slip to see if you are receiving any HRA. If you do, you can’t claim a deduction for rent paid under section 80GG.

Example: Sameer works for a pharma company in Ahmedabad and receives a salary of INR. 7,20,000. He receives HRA of INR. 3,00,000 per month. He pays house rent of Rs. 2,40,000 to his landlord

The least from the following will be exempt from Taxes:

  • Rent paid (-) 10% of the total income: INR. 1,68,000 [2,40,000-10%(7,20,000)]
  • Rs. 5000 per month i.e annually INR. 60,000.
  • 25% of the total income: INR. 1,80,000 [25%(7,20,000)]

INR. 60,000 will be exempt from Sameer’s total income under section 80GG.

Can I claim both HRA and deduction on Home loan?

Yes, you can. The benefits of HRA and deduction for Home Loan can be availed simultaneously.

If you are living in a rental house & your own house is occupied by your spouse, children and/or your parents, you can claim:

  • HRA for the rent you pay to landlord &
  • Deduction for Home Loan interest up to a maximum of Rs. 2,00,000

If you are living in a rental house & your own house is also given on rent, you can claim:

  • HRA for the rent you pay to the landlord &
  • Deduction for Home Loan interest without any limit

FAQs

1. How to calculate exemption on HRA?

Exemption on HRA is the lowest of

  • Actual HRA received from an employer
  • 50% (for Metro) or 40% (for Non-Metro) of Basic Salary
  • Annual Rent Paid – 10% of Basic Salary

2. Is HRA deductible under section 80C?

No. HRA is an allowance and is exempt from Salary Income. You can know your exempt HRA from Form 16 issued by your employer.

3. Can I claim HRA exemption if I live with my parents?

You can go for a rental agreement with anyone except your spouse and claim HRA. So, if you have a rental agreement with your parents, you can ask for House Rent Allowance tax benefit from your employer.