House Rent Allowance (HRA)
As the name suggests HRA is a specific allowance that is granted by the employer to employee to meet the expenses incurred on rent. As per section 10 of Income Tax Act, 1961 Amount of HRA is not included in the total income of a person, which results in reduced tax liability. For claiming benefits of HRA exemption following conditions must be satisfied:
- The employee has actually incurred expenditure on payment of rent i.e. he/she is living in a rented house.
- The employee must not be the owner of the house in which he/she is living.
HRA Exemption limit
HRA exemption amount is calculated on the basis of area or place in which such house taken on rent by the employee is situated. Actual amount of HRA exemption shall be least of following:
- Actual HRA received by the employee during the period he/she was living in rented house in the previous year.
- Rent paid by the employee minus ten percent of basic salary.
- 50% of the basic salary if rented house is in metro city or 40% of basic salary if rented house is in non-metro city.
Here basic salary is basic+DA+commission on sale at fixed rate.
Deduction of Rent for self-employed and those not receiving any HRA
Section 80GG of Income Tax Act provide for deduction of any rent paid by a person from his total income which reduces his/her tax liability. For claiming the deduction under this section following conditions must be satisfied:
- The assessee or his spouse or minor child or HUF of which he is a member does not own a residential house at the place where the assessee currently residing or performing duties of his office or employment or carries on his business or profession;
- The assessee does not own a residential house at any other place which is self-occupied.
- The assessee is self-employed or salaried.
- If salaried, the assessee is not receiving any HRA from employer.
To claim deduction under this section the assessee is required to file form 10BA containing details of payment of rent.
Eligible Rent deduction amount: Maximum deduction in respect of rent paid by the assessee shall be least of the following:
- Five thousand Rupees Per Month.
- twenty-five percent of total income of the assessee for the year.
Quick FAQ and notes
What if I forget to submit my rent receipts to my employer?
You can claim HRA exemption while filing your Income Tax Return.
Can I claim HRA exemption if I am paying rent to my spouse (Husband/Wife)?
No, it is not allowed as per the provisions of Income Tax.
Do I need to upload any document with my Income Tax Return for claiming HRA exemption?
No, but it is advisable to keep relevant documents handy in case you receive any notice from tax authority.
Can I claim HRA exemption if I am paying rent to my parents?
Yes, you can claim HRA exemption while paying rent to your parents. You may execute a rent agreement with your parents and get rent receipts signed from them to avoid any tax litigation.
What are the documents required for claiming HRA exemption?
- Rent Agreement
- Rent Receipts
- Pan of landlord if annual rent is more than one lakh rupees.