House Rent Allowance (HRA)

What is HRA?

House Rent Allowance (HRA) is a benefit given by employers to help employees with the cost of renting a home. It forms part of your salary package and can be partially or fully exempt from taxes under certain conditions.

Who Can Claim HRA?

Salaried employees who get HRA and live in rented homes can get a tax benefit.

Self-employed individuals are not eligible for HRA. However, they can still claim tax deductions for the rent they pay on their home. This can be done under Section 80GG of the Income Tax Act.

How Much HRA Can Be Exempted from Tax?

The HRA exemption you can claim is the lowest amount among the following:

·       Actual HRA Received: The amount your employer pays you as HRA.

·       Rent Paid Minus 10% of Basic Salary + Dearness Allowance (DA): Your annual rent payment minus 10% of your annual basic salary and DA.

·       Metro City HRA Limit: 50% of your annual basic salary + DA if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai).

·       Non-Metro City HRA Limit: 40% of your annual basic salary + DA if you live in a non-metro city.

How to Claim HRA Exemption

To claim the HRA exemption, you'll need to meet these requirements:

·       Reside in rented accommodation.

·       Receive HRA as part of your salary.

·       Submit rent receipts as proof of rent payments exceeding Rs. 1 lakh annually (along with the landlord's PAN details).

·       Provide other rent receipts with details like date, landlord's name and PAN, tenant's name, address, rental period, revenue stamp, and landlord's signature.

Example: Calculating HRA Exemption

Let's consider Mr. Shiva, a salaried Mumbai resident who pays Rs. 10,000 monthly rent (Rs. 1.2 lakh annually). Here's his monthly salary structure:

·       Basic Salary: Rs. 30,000

·       HRA: Rs. 13,000

·       Other Allowances (Conveyance, Special, LTA): Rs. 10,000 (combined)

Mr. Shiva's tax-exempt HRA amount will be the lowest value among these:

·       Actual HRA: Rs. 1.56 lakh (annual)

·       50% of Basic Salary (Metro City Limit): Rs. 1.80 lakh (annual)

·       Actual Rent - 10% of Basic Salary: Rs. 84,000 (annual)

Therefore, Mr. Shiva can claim Rs. 84,000 as his HRA exemption, minimizing his taxable income.

Remember: Consulting a tax advisor can provide personalized guidance based on your specific income and deductions.