HRA Tax Exemption: How Is HRA Calculated And How Can You Save Tax With HRA?
Understand more about HRA (House Rent Allowance), learn how it is calculated, and how you can save tax with HRA.
Most of us receive HRA, or House Rent Allowance as part of our salary structure. If you live in a rented house, you could get an income tax exemption for the HRA component of your salary. Let’s understand more about HRA (House Rent Allowance), learn how it is calculated, and how you can save tax with HRA.
Who Can Avail HRA Tax Exemption?
The HRA tax exemption is available only for salaried individuals who have the HRA component in their salary structure and are staying in rented accommodation. Note that such individuals must opt for the old income tax regime to claim this exemption.
For employees who pay rental expenditures but do not receive HRA as part of their salary structure, or for those who pay rental costs but do not have income earnings, the benefits of paying rental costs can be claimed under Section 80GG of the Income Tax Act or the HRA exemption section.
How Is The HRA Tax Exemption Amount Calculated?
The tax exemption on HRA is the minimum of one of the following:
Actual HRA received with the basic salary
50% of your salary if you live in metro cities, or 40% for non-metro cities
Excess of annual rent paid over 10% of annual salary
For calculating the HRA exemption amount, the salary considered is the basic salary component, along with the Dearness Allowance (DA) and commission received on the basis of sales turnover (if any).
What Are The Documents Required To Claim HRA Tax Exemption?
To claim tax exemptions on HRA you will have to submit the rent receipts or your rent agreement with the house owner. If your annual rent exceeds ₹ 1,00,000, you will also be required to report your landlord’s PAN details to avail the HRA tax benefit.
Are you a salaried taxpayer? Here is a checklist of the income tax investment proofs you need to submit to your employer.
What Are The Things to Consider When Claiming HRA Tax Deductions?
Here are certain things you must keep in mind before claiming HRA tax exemptions:
You cannot claim HRA tax exemptions if you are paying rent to your spouse.
You can claim HRA exemption in income tax even if you have taken a home loan.
You can claim tax exemption on House Rent Allowance even if you stay with your parents by paying rent to them.
In the case your landlord is an NRI, a TDS (Tax Deducted at Source) of 30% needs to be deducted from the rent before paying it.