How to Claim HRA While Filing Your Income Tax Return (ITR)?

You’ve been hearing a lot about HRA exemptions from coworkers, the HR director, and friends. It seems to be a profitable tactic to save taxes, yet you may be wondering: Can I claim HRA exemption? If so, what are the main needs that must be met to get this perk? How much HRA tax relief can I claim? 

Let’s find the answers to these pressing questions in the next sections.

What is HRA?

HRA stands for House Rent Allowance. It is the sum the firm gives to staff to assist them in paying the costs of living in rental housing. HRA is paid as a sub-component of salary by most employers in the private and public sectors. 

The most exciting part is that salaried people who live in leased houses may claim HRA tax exemption under Section 10 (13A) of the Income-Tax Act. To claim exemptions such as HRA, LTA, and income tax deductions as per Chapter VI-A, you must submit Form 12BB to your employer. It should be noted that under Section 80GG of the Income Tax Act, self-employed people may also claim tax exemption for rent paid.

How is HRA Tax Exemption Calculated?

The deduction available is the least of the following amounts:

• Actual HRA received.
• 50% of [base pay + DA] for people who live in cities.
• 40% of [base pay + DA] for residents of non-metros.
• The actual rent must be less than 10% of the base pay and DA combined.

Eligibility Criteria to Claim HRA

If the following criteria are met, you may claim HRA exemption for the time you stayed in rental homes:

1. You must be a salaried employee

HRA-related tax perks are mainly given to salaried persons. This exemption is not open to self-employed persons.

2. HRA is included in your CTC or payment package

Your CTC or pay package is made up of many items, such as base salary, allowances, extra perks, and so on. To take advantage of this exemption, you must make sure that HRA is included in your CTC.

3. Live in rental homes

This exemption is only available if you live in a rented home. You must be paying rent. There is no tax perk if you live in a self-owned home.

You’re surely curious if you can claim this deduction if you live in your parent’s home and pay rent to them. Yes! You may claim the exemption by paying rent to your parents. Your parents, on the other hand, must report rent income received from you on the income tax return. It is also suggested that you pay rent by bank transfer and sign the rental agreement.

4. Submit a rent slip to your employer to inform them of your rent payment

You must notify your employer of the rent you have paid and submit your rent slip. The landlord’s PAN must be given if the yearly rent is more than Rs. 1,000,000.

5. Claim at the time of return

Employers often do not provide HRA exemption on Form 16 owing to a lack of valid data. But if your HRA claim was not assessed in Form 16, you might claim the exemption directly in your IT return.

How Do You Claim HRA Exemption While Filing Income Tax Returns?

Section 80C of the Income Tax Act of 1961 exempts premiums from taxation. Also, any reward received under the savings policy is tax-free under Section 10 (10D).

In most cases, your boss will require that you submit your home rent slip in the last quarter of the fiscal year to claim HRA exemption on Form 16 prepared by the employer. If you do not provide your rent slip to your employer, the firm will take TDS (Tax Deducted at Source) without considering the HRA on your wage slip. Even in this situation, you may claim HRA deduction on your ITR. You must manually compute the exempt HRA total.

1. If you provide a rent slip to the employer:

If you submit your house rent slip to your employer and other supporting papers, they will review the case and lower the tax withholding accordingly. Form 16 and your tax return will both disclose your exemption. Claiming HRA via your workplace is simple.

However, if your yearly home rent exceeds Rs. 1 lakh, you must provide your landlord’s PAN card data to your boss to qualify for the HRA exemption.

Also, because your Form 16 and ITR-1 forms are synced, filing for HRA tax exemption has become even easier since the amount is instantly pre-filled in the ITR forms when you submit your claim online.

2. If the employer does not get the rent slip:

If you did not submit your receipts to the employer, you might claim an HRA exemption in your ITR. In this situation, the firm would not have included the HRA exemption in the taxed wage, resulting in a greater TDS deduction.

The excess TDS deduction will be repaid when you claim the HRA deduction on your ITR. Yet, you must compute the correct HRA exemption amounts and subtract the equivalent amount from your pay.

Factors to Consider Before Making HRA Deductions

Here are a few points to know regarding HRA tax exemptions:

1. If you pay rent to your spouse, you cannot claim HRA tax exemptions.
2. HRA exemption from income tax can be taken even when you have a house loan.
3. If your landlord is an NRI, a TDS (Tax Deducted at Source) of 30% must be deducted from the rent before it is paid.

Conclusion

A salaried employee should take advantage of the chance to claim an HRA tax exemption since it is one of the finest legal methods to save tax. Make a point to keep all solid pieces of evidence. To be on the safe side, send money via a bank account since it is hard to prove rent is paid in cash. The value of the exemption is assessed by section 10 (13A) of the Income Tax Act. 

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