tax saving

For most employees, House Rent Allowance (HRA) is a common component of their salary structure. Although it is a part of the salary, HRA, unlike basic salary, is not fully taxable. Subject to certain conditions, a part of HRA gets exempted under Section 10 (13A) of the Income-tax Act, 1961.



The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee save tax. Remember, the HRA received is fully taxable if an employee is living in his own house or if he does not pay any rent.

Who can avail HRA?
The tax benefit is available only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented accommodation. Self-employed professionals cannot avail the deduction.

How much is exempted?
The exemption for HRA benefit is the minimum of:
i) Actual HRA received



  • ii) 50% of salary if living in metro cities, or 40% for non-metro cities; and
    iii) Excess of rent paid annually over 10% of annual salaryFor calculation purpose, the salary considered is ‘basic salary’. In case ‘Dearness Allowance (DA)’ (if it forms a part of retirement benefits) and ‘commission received on the basis of sales turnover’ is applicable, they too are added to compute the minimum HRA exemption available.The tax benefit is available to the person only for the period in which the rented house is occupied.Example of HRA calculation
    Let’s say an individual, with a monthly basic salary of Rs 15,000, receives HRA of Rs 7,000 and pays Rs 8,400 rent for an accommodation in a metro city. The tax rate applicable to the individual is 20 percent of his income.To avail HRA benefit, the least of the following amount (yearly) is exempted, rest is taxable:
    i) Actual HRA received = Rs 84,000
    ii) 50% of salary (metro city) = Rs 90,000 (50% of Rs 1,80,000)
    iii) Excess of rent paid annually over 10% of annual salary = Rs 82,800 (Rs 1,00,800 – (10% of Rs 1,80,000))It shows that of Rs 84,000 actually received as HRA, Rs 82,800 gets tax exemption and only the balance of Rs 1,200 gets added to the employee’s income, on which a tax of Rs 240 ( 20 per cent slab ) gets payable.

    Documents
    HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.

    It is mandatory for the employee to report the Pan Card of the ‘landlord’ to the employer if the rent paid is more than Rs 1,00,000 annually.

    Special cases
    There could be special scenarios in claiming HRA tax benefit, such as:

    Paying rent to family members
    The rented premises must not be owned by the person claiming the tax exemption. So if you stay with your parents and pay rent to them then you can claim that for tax deductions as HRA. However, you cannot pay rent to your spouse. As, in the view of the relationship, you are supposed to take the accommodation together. Thus, these transactions can invite the scrutiny from the Income -tax Department.

    Even if you are renting the house from your parents, make sure you have documentary evidence as proof that financial transactions regarding your tenancy takes place between you and your parent. So keep a record of banking transactions and rent receipts because your claim can get rejected by the tax department if they are not convinced by the authenticity of the transactions. Recently, there has been an instance in which the HRA claim of a salaried taxpayer was rejected by the Mumbai income tax appellate tribunal because the claim for HRA did not appear genuine to the tax officials.



    2. Own a house, but staying in a different city
    One can avail the simultaneous benefit of deduction available for the home loan against ‘interest paid’ and ‘principal repayment’ and HRA in case your own home is rented out or you work in another city.

    Individuals who don’t get HRA but pay rent
    There may be some employees who might not have HRA component in their salary structure. Also, a non-salaried individual might be paying rent. For them, Section 80 (GG) of the Income-tax Act offers help.

    An individual paying rent for a furnished/unfurnished accommodation can claim the deduction for the rent paid under Section 80 (GG) of the I-T Act, provided he is not paid HRA as a part of his salary by furnishing Form 10B.

    How much
    The least of the following is available for exemption from tax under Section 80GG:
    (i) Rent paid in excess of 10% of total income
    (ii) 25% of the total of the total income*
    (iii) Rs 5,000 per month

    *Under this section, the total income is calculated as gross total income minus long-term capital gains, the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under Sections 80C to 80U, except Section 80GG.



    Conditions
    While claiming a tax deduction, one must remember that the individual himself or his/her spouse, or minor child, or as a member of the Hindu Undivided Family (HUF) must not own any accommodation. Also, if the individual owns any residential property at any place and earns rent from it then no deduction is allowed.

    One can avail the simultaneous benefit of deduction available for the home loan against ‘interest paid’ and ‘principal repayment’ and HRA in case your own home is rented out or you work in another city. However, the same is not available in case of Section 80GG.

    (With inputs from Sunil Dhawan)

VIAEconomictimes
SOURCEEconomictimes
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31 COMMENTS

  1. i’m a banker and i’m availing leased accomodation facility and not receiving any HRA, how much HRA excemption can I claim?

  2. Rent calculation is wrong
    1- Excess of rent paid over 10% of annual salary will be as follows
    (i)- Annual Income is (as said)- 180000/
    (ii)- 10% of it would be just- 18000/
    (iii)- Rent he paid is 84000/
    (iv)- Rent paid in excess of 10% of annual income= 84000-18000 = 66000/ (But not 100800. as said)
    (v)- A man with salary of 180000/annum will not fall in tax bracket of even 10% (Forget 20%) bacause tax slab begins from 250000/!
    SO WHOLE ASSUMPTION & CALCULATION IS THOROUGHLY WRONG!

  3. I understand that the condition stated in the article for deduction under 80 GG section may not be correct. The deduction will not be available only if the assessee has a residence which he declares to be self occupied. Jayanth Kumar ( Mobile : +91 94490 70837 )

  4. What about the Tax exemption on the amount that we are paying for the Registration of the Rental agreement for a house for every 11 months around Rs.2800 (Registration fee + Brokerage fee etc.) for atleat 1BHK and for changing of a new house after completion or in between the rental agreement. The brokerage percentage (10%) for searching of a rental new house with additional Registration and Rental agreement fee. I mean the registration fee and also the brokerage amount (which is to be documented with the involvement of Govt. of India) also to be considered under Tax exemption. HRA why not to be exempted 100% ?????????????????

  5. More over, Why Income Tax deduction should not be simplified and done on percentage basis, slab basis, i.e for Example,
    If Salary falls in between, Rs.0.00 to Rs.2,50,000 – 100% Exempted
    Rs.2,50,000 to Rs.5,00,000 – Directly 2.5% Applied
    Rs.5,00,000 to Rs.10,00,000 – Directly 5% Applied
    Rs.10,00,000 to Rs.15,00,000 – Directly 7.5% Applied
    Rs.15,00,000 to Rs.20,00,000 – Directly 10% Applied
    Rs.20,00,000 to Rs.30,00,000 – Directly 12.50% Applied and so on
    For Medical, Disabled, Senior Citizens, Super Senior Citizens and etc etc exemptions to be applicable on just percentage basis. Then every budy will be clear that this financial year I have to pay this much amount only against Income Tax.

  6. Thanks for finally writing about >HRA Exemption Rules: How to
    save tax on House Rent Allowance – Businees League <Loved it!

  7. Thanks. I am pleased to read the article. As I am interested to know about various things of income tax,so kindly write in this way.

  8. A competent and experienced project Executive, with over 8 years experience in supervisor and handling project sites, responsible for make skilled installation team for perfect furnishing of furniture work and ability to provide the satisfy work for client. Especially successfully to executive role that demand of high level installation of modular furniture, packing and dispatch of materials according to requirement of site.

  9. I am a retired central government employee.I am in receipt of pension.I am not having own house.Iam paying RS.7500/- as rent. Can I claim exemption of Rent paid under 80(GG)?

  10. I get Fixed pay ( no component called basic in my salary structure), in this case how I should Calculate HRA?
    1. Actual HRA Received : – no issue
    2. 40%/50% of Basic : – Issue, when I don’t get basic how I can arrive at 40% / 50%
    3.Rent Paid – 10% of Basic : – Issue, Can’t arrive as I get Fixed Pay
    (Whichever is lower)

    Please guide.

  11. Iam a bank emploee and bank provide quarters for me. Now showing 90000 for rent in my tax. Weather i can eligible show this in my income tax

  12. can we get double HRA, i.e if i am staying in chennai and my parents are in some where in hyderabad and i am paying rent for both houses ( chennai & hyderabad ) . can i show both HRA’s in my tax…

  13. Examples shown are not realistic. Most of the employees get negative amount of HRA exemption. IT dept. need to revise the formulae to arrive HRA exemption. All the employees are grilled under clutches of Govt.and they are golden ducks to government to generate solid revenue. No polician will express sympathy on employees. There is no way except to bear silently

  14. I am retired Central pensioner. My income is about 5,00000.Can I claim HRA CLAIM AS I AM RESIDING IN MY DAUGHTER HOUSE AND PAYING RENT RS 10,000 PER MONTH.
    HOW TO CLAIM EXCEMPTION UNDER INCOME TAX ACT.PL ADVISE ME.

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