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.
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.
House Rent Allowance Calculation
The House Rent Allowance calculation formula has been explained below with the help of an 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)|
|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 House Rent Allowance. Hence taxable House Rent Allowance will be INR. 45,000 (1,75,000-1,30,000).
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.
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.
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
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
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.
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.
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.