House Rent Allowance : Rules, Exemptions, and Calculations

What is House Rent Allowance?

The full form of House Rent Allowance. It 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 House Rent Allowance.

From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on House Rent Allowance. House Rent Allowance Exemption is only available if an employee opts for the Old Tax Regime.
Tip
From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on House Rent Allowance. House Rent Allowance Exemption is only available if an employee opts for the Old Tax Regime.

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.

House Rent Allowance Exemption

The House Rent Allowance exemption rule is that the least of the following will be deducted from salary as an exemption under House Rent Allowance:

  • Actual House Rent Allowance from employer
  • Actual rent paid less than 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.
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House Rent Allowance Calculation

The House Rent Allowance calculation formula has been explained below with the help of an example:

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
House Rent Allowance 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 House Rent Allowance:

  1. Actual House Rent Allowance: 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 from House Rent Allowance. Hence taxable House Rent Allowance will be INR. 45,000 (1,75,000-1,30,000).

HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
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HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
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What if I don’t receive any House Rent Allowance?

Under Section 80GG, a deduction is allowed to an individual who pays rent without receiving any House Rent Allowance. 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
  • 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:

  • 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 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.

Example

Sameer works for a pharma company in Ahmedabad and receives a salary of INR 7,20,000. He receives a House Rent Allowance of INR 3,00,000 per month. He pays house rent of INR 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)]
  • INR 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.

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Can I claim both House Rent Allowance and deduction on the Home loan?

Yes, you can. The benefits of House Rent Allowance 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:

  • House Rent Allowance 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:

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

FAQs

How to calculate exemption on House Rent Allowance?

Exemption on House Rent Allowance is the lowest of
– Actual House Rent Allowance received from an employer
– 50% (for Metro) or 40% (for Non-Metro) of Basic Salary
– Annual Rent Paid – 10% of Basic Salary

Is House Rent Allowance deductible under section 80C?

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.

Can I claim the House Rent Allowance exemption if I live with my parents?

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.

Which ITR needs to be filed if House Rent Allowance is claimed?

Salaried individuals can file ITR-1 while claiming exempt House Rent Allowance. However, salaried needs to file ITR-2 if income is more than INR 50,00,000.

When do I need to submit PAN of landlord to employer?

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 NRI Landlord, an employee needs to deduct TDS on payment and TDS Return in Form 27Q needs to be filed every quarter.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    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.

  2. 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.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    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.

  3. 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.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    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!

  6. Hello,

    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.

  7. Hello @Veejayy,

    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!

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