HRA Exemption Rules & HRA Tax Benefits

• You can claim an HRA benefit if you are a salaried employee, your salary has an HRA component, and/or you stay in a rented accommodation.
• HRA benefit is available subject to the conditions mentioned in section 10(13A) of the Income Tax Act.
• If you don’t receive HRA or are a business person, you are not eligible for an HRA benefit. But the good news is you can still get income tax benefits on the rent paid under section 80GG.
• Submit the necessary details to your employer to claim HRA tax exemption.

When you receive your salary slip, it usually contains a breakdown of the different components. The ‘House Rent Allowance’ or HRA is one of its components. It is a crucial salary component and offers tax-saving benefits to those living in a rented apartment.Through this blog, we will address various facets of HRA, such as eligibility, House Rent Allowance calculation, and HRA tax exemption, among others. Let's get started!

You need to fulfil a few conditions to be eligible to claim an HRA benefit. These include:

• You are a salaried individual.
• Your salary structure has an HRA component.
• You stay in a rented place.

Thus, if you satisfy the above conditions, you can enjoy HRA tax exemption under section 10(13A) of the Income Tax Act.This means if you don't receive HRA or are a businessperson, you are not eligible for an HRA benefit. However, you can still get income tax benefits on the rent paid under section 80GG, subject to the fulfilment of certain conditions.

The house rent allowance calculation process helps determine the tax-free component of your total HRA. The tax-free component or the exemption limit is the least or minimum value of the following:

• Actual HRA received, or
• Actual rent paid minus 10% of salary, or
• 50% of salary in case of metro cities/40% of salary in case of non-metro cities

(Metro cities include Mumbai, Delhi, Kolkata, and Chennai) Note: Salary refers to the sum of basic salary, DA (Dearness Allowance), and any other commissions as applicable.The least/minimum value of the above three represents the tax-free portion of your HRA. Deduct the tax-free portion from your total HRA to derive the taxable HRA, which will be taxed as per the applicable income tax slab rates. Example Let’s consider the following example:

If in the above example, if the location is a non-metro city instead of a metro city, then the calculation changes in point 3 as shown below:

Note: To know the HRA benefit in your case, you can use the house rent allowance calculator on the Income Tax Department website. Also Read: Section 80GGC Of The IT Act: 3 Things You Should Know

To claim the HRA tax exemption, it is necessary to submit the below-mentioned details to your employer:

• Landlord’s PAN when the annual rent exceeds ₹1 lakh.
• Your PAN card details.
• Receipts for the rent paid during the financial year.
• Copy of the rent agreement.

You can continue to claim HRA under the old tax regime, but you cannot claim HRA under the new tax regime. However, your total tax liability doesn’t depend on HRA alone. It depends on several factors, including total income, tax-saving investments, and other deductions.Therefore, it is advisable to consult your financial professional to determine the total tax liabilities under both these regimes. Also Read: House Rent Allowance (HRA): Meaning, Deduction & Exemption

If you live with your parents, you can claim an HRA benefit. However, the house should be owned by either or both of your parents and entering into a rental agreement is essential.Note that the PAN details of your parents are necessary where the annual rent amount is more than ₹1 lakh. Additionally, you must have the relevant proof of rent receipts; you may use bank transfers or cheques to establish these payments. Note : Your parents must declare rental receipts as income from house property while filing their income tax returns.

You can usually claim both HRA benefit and deduction on home loan interest, subject to the fulfilment of relevant conditions. It is advisable to consult a tax expert to understand the provisions applicable in your case.Make sure to have all the necessary documents, including the home loan interest certificate, to claim a deduction on home loan interest. Likewise, keep all details needed for HRA exemption ready, such as rental agreement, rent receipts, etc.

As mentioned earlier, HRA must be a part of your salary component to claim its benefits. However, if you do not receive HRA, and are paying rent, you can still enjoy income tax benefits under section 80GG.The section lays provisions for different scenarios, thus you should seek the guidance of your tax consultant to understand the applicability of this section better. Meanwhile, here are some essential 80GG conditions that you should know of:

• You must be salaried or self-employed.
• If salaried, there is no HRA component in your salary.
• You should not own a residential property.

If you stay in rented accommodation and fulfil the applicable conditions, you can claim HRA tax exemption. Make sure to submit the relevant details and supporting documentation to your employer.Staying on rent not only offers tax benefits but also allows some time to sort out your finances and save for buying a home. Once you have a reasonable corpus set aside, you can strengthen it with a home loan. You can usually avail of funding of up to 90% of the home cost with a flexible repayment period.Curious to know more? Explore home loan solutions today!