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.