House rent allowance (HRA) is the allowance you receive from your employer or organization towards the rent of your house. It forms part of your salary.
HRA depends on your salary, city of residence, company’s salary structure, etc. Generally HRA is a fixed percentage of your basic salary. You can claim a tax exemption on your HRA under Rule 2A of Income Tax, 1961.
The calculation of HRA is influenced by multiple factors which are as-
Self-employed people can also claim deductions and exemptions towards House Rent Allowance (HRA). They can claim a deduction under Section 80GG of Income tax.
Salaried employees can claim exemptions under Section 10 (13A), rule 2A of the Income Tax Act. The House rent allowance is part of an individual’s salary, so it should be claimed using a defined procedure.
The deduction available is at least of the following amounts.
If the payment of rental expenses is more than one lakh rupees it is mandatory to provide the PAN details of the landlord while filing the income tax returns.
Let us understand the HRA component by taking a simple illustration of a salaried employee.
Mr. A employed in Delhi has taken accommodation on rent for which he pays 30000 Rs per month as rental. He receives a basic salary of 50000-/ and a dearness allowance of 8000-/ monthly which is also a part of his salary. He receives an HRA of 1,20,000 throughout the year.
House rent allowance is eligible for HRA deduction under Section 10(13A) of the Income Tax Act if an individual meets the following criteria.
HRA exemption rule states that HRA deduction is allowed for only those individuals who are either salaried or self-employed and living in a rental accommodation. It means even if you are getting HRA from your employer and you are not living in a rented property your entire amount for house rent allowance is taxable under Income Tax Act.
Taking the above example of Mr. A if he was not paying rent his entire amount of 1,20,000 would be taxable under his applicable income tax slab.
For self-employed individuals who didn’t receive any HRA amount, the HRA rule allows the benefit of claiming HRA exemption under 80GG.
Therefore, while calculating HRA exemption, it is important to understand whether you claim HRA deduction under Section 10(13A) or Section 80GG.
HRA deduction under Section 10(13A) has the following benefits:
Self-employed and salaried employees cannot claim deduction under Section 10(13A) . However they can still avail the benefit under Section 80GG of the Income tax.
Under Section 80GG, an individual can claim deduction in least of the following
HRA exemption is a provision in the Income Tax Act that allows employees to deduct tax from their total salary.
In order to claim this exemption certain documents are necessary.
Documents required to get House Rent Allowance Deduction are:
Along with these documents you might also be asked to submit some additional documents based on your job profile, income and the duration for which you have rented the apartment.
The HRA is a tax deduction available to employees and self employed individuals in India. The employee will deduct the amount of HRA from their salary and pay it directly to the employee upon his entitlement.
HRA Exemption Calculation is important to determine how much of your income is exempted from income tax. You can follow a series of steps to calculate that. Various software can be used to calculate HRA.