HRA Calculation: 6 Key Things You Should Know About

A house rent allowance (HRA) is a tax-free allowance received by an employee from his employer in addition to his salary. This is the most debatable topic in India due to various reasons. Some think it benefits the employee, while others consider it a waste of taxpayers' money. If you are looking for good and reliable content on HRA in India, you are at the right place.Most individuals who are salaried employees are entitled to House Rent Allowance (HRA) as a component of their salary package. If you are staying in rental accommodation, as per Section 10 (13A) of the income tax act, you can claim a tax exemption while filing your returns. You can subsequently minimise your taxable income and hence the tax.Let’s look at a few important facts that you must know regarding HRA:

• The HRA amount specified by the company in your salary structure
• 10% of your basic salary subtracted from the actual rent paid by you
• 50% of your basic salary, if living in a metro city and 40% otherwise

• A valid rental agreement.
• Signed and stamped rent receipts by the landlord that entails all the details such as rent amount, address of the property, the amount received, etc.
• If the rent exceeds Rs 1 lakh in a year or 8333 per month, the landlord’s PAN details must be furnishes. If the landlord doesn't have a PAN number, Form 60 filled by the landlord must be produced.

1. You Are Not Eligible for HRA, by Default This provisions under Section 10(13A) is available only for salaried employees and not for business owners or self-employed professionals. Moreover, a salaried person with HRA component in the CTC (Cost To Company) package but not staying on rent is not eligible for claiming tax exemption against HRA.If you are self-employed or a salaried professional with no HRA component in the salary, you can claim an exemption under Section 80GG of the IT Act.
2. You Cannot Claim Exemption for Entire Rent Paid by You As per the tax rules for HRA, your exemption amount is computed based on the below factors.
3. The one with the least amount will be treated as your HRA exemption.
4. Proper Documentation is a Must to Ensure that the Claim is not Rejected: Below guidelines should be followed to avoid rejection of claim:
5. You can Claim an Exemption for Both HRA and Home Loan If you are living in a rented space but also paying home loan EMIs for another property, you are still eligible to claim exemption benefits for both, HRA and home loan. If the amounts are reasonably higher without insufficient reasons, the situation will be closely observed by the authorities. Also, the claim may get rejected sometimes, if the individual is unable to produce required documents and facts.
6. You Can Pay Rent to Your Family and Still Avail HRA Benefits It may happen that you are staying with your parents or other family members and pay rent to them. The only condition is that you must not be the owner or co-owner of the house as per documents, and the owner must not be your spouse or a minor child. The income tax authorities may analyse your case for genuineness.Also, make sure to submit all the valid documents and receipts while filing the returns, as done otherwise. Moreover, the receiver of the rent (your parents) must show rent as “income from other sources” in their ITR.
7. HRA Claims can be Made While Filing Tax Returns Even if you have missed submitting rent receipts and other documents to your employers, you can still make HRA claims while submitting IT returns. If any additional tax has been deducted, the refund can be claimed accordingly.

Make sure to follow the guidelines for HRA and produce all the valid documents as mentioned above. This can help you to save tax by lessening your taxable income.