As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.
It is the beginning of one more brand new financial year. Though the words “income tax” start ringing a frantic bell towards the end of every financial year, the wise planner will have things sorted out when the year begins in April. There are many tax components you need to be clear about and also figure out how to plan your investments to gain maximum returns as well as maximum tax benefits. One such tax component is the tax benefit you can claim from your house rent allowance.
HRA (house rent allowance) is provided to salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. Self employed professionals are eligible for tax deductions under section 80GG of Income Tax Act, 1961.
Dependent factors
When you are calculating HRA for tax exemption you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e. if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike or shift in residence etc. then it is calculated on a monthly basis.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary.
On paying rent
It is not essential that you should pay rent only to a landlord to avail your HRA benefits. You can pay rent to your parents or your spouse to claim tax benefits. However, they need to account for the same under`Income from other sources’ and will be entitled to pay tax for the same.
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
How is HRA calculated
To figure out how much HRA exemption you are eligible for, consider these three values which includes a. The actual rent allowance the employer provides you as part of your salary, b. the actual rent you pay for your house from which 10% of your basic pay is deducted, c. 50% of your basic salary when you reside in a metro or 40% if you reside in a non-metro.
The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit.
Here is a sample illustration for your understanding:
Sunitha earns a basic salary of Rs 40,000 per month and rents an apartment in Delhi for Rs 20,000 per month (hence eligible for a 50% of the basic pay for HRA exemption). The actual HRA she receives is Rs 25,000.
These values are considered to find out her HRA tax exemption:
a. Actual HRA received, i.e. Rs 25,000,
b. 50% of the basic salary, i.e. Rs 20,000, and
c. Excess of rent paid over 10% of salary, i.e. Rs 20,000 - Rs 4,000 = Rs 16,000
The value considered for her actual HRA exemption will be the least value of the above figures. Hence, the net taxable HRA for Sunitha will be Rs. 25,000 - 16,000 (available HRA deduction) = Rs. 9,000.
Availing tax benefits on your home loan and HRA
As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.
If you are a couple and one of you have taken a home loan, the other can claim HRA benefits provided again the other pays tax on rental income received.
Thanks for the clarity.
It will be greatful if you could clarify me the doubt. My employer pays HRA. I am living with my parents, which is Joint HUF. My father is willing to receive rent from me and also account the receipt in his taxable income underthe head income from other source.
Can I pay the rent to him and collect the stamped receipt for claiming HRA exemption.
Kindly clarify.
Yes, if you are a salaried employee and your parents own the house you can claim the tax rebate for HRA. You should submit receipts for the actual payment and be in a position to provide a copy of the lease agreement if a proof is demanded.
Is Tax Deduction at Source (TDS) applicable while paying the rent to the owners? If so, up to what amounts of rent are eligible for TDS exemption? Is PAN number of the owner compulsory in the rent receipt?
Hi,
We live in metro city and our home loan property is in a non metro city. We do not have any rental income with it.
We both are joint applicants in Home loan and home is registered in my wife’s name. My wife is prevailing the home loan deduction in her tax profile and I am prevailing HRA benefits in my profile as I pay the rent for my Metro accomodation.
Can we do so ? or there is any hindrence by law in it ?
i live in hyderabad. is it declared as metro city. can you please clarify this.
To Subramani
Hbad is not a Metro
only 4 metros in india
Delhi, mumbai, chennai and kolkatta
I live in Gurgaon. whether its come under metro city gurgaon or not? As per ministry’s circular, HRA paid to gurgaon as per delhi rate. Is the same will be applicable while claiming rebate?
Dear Sir
I am working in a private company in Gurgaon and staying at Gurgaon. The company gives me HRA @ 50% of my basic salary. While claiming rebate one of the rule of HRA rebate says 50% of salary for metro city and 40% of salary for non-metro city. (1) Whether Gurgaon comes under Delhi metro city or not? As per Ministry of India O.M. no 11023/1/86-E.II(B) dt. 09.12.86 where it says HRA/CCA at Delhi rates in Gurgaon. Whether the same for claiming tax rebate.
If gurgaon comes under metro city I can get full HRA rebate, otherwiswe I can get 40%, (2) then is the rule of giving 50% HRA of Basic is justified?
I will be obliged to get the reply soon. Thanks in advance
The article ” Are you calculating your HRA right?” posted on 16.06.09. The contents are understood but it needs to be confirmed whether the procedure is acceptable under the law i.e whether it is okayed by the tax experts of the site.
Please do consult with the auditor of your firm on how best to enable the tax benefits for you. The process detailed here is ofcourse acceptable by law but as far as how best to present it varies from company to company and depends on the individual company policy.
I have two rented house, one in the city of my workplace (Ludhiana) other in another city (Delhi). Wanted to know whether I can claim HRA benefit against rent paid for the house which is located in Delhi though I work in Ludhiana.
Please do the needful.
Regards
I am having my own house, Which i have leased tomy company & compancy has given same house to me for living against my HRA. what are tax implication for the same. Do i have to pay tax on lease amount which i get as a owner as well as HRA.
Regards
Suneet
Technically you can, however since the lease and the rent reciepts are likely to be at the same address it may raise doubts if it comes under the scanner. Just have supporting documents in place for this probability.
Hi
I am currently repaying EMI on home loan, Shall I eligible for HRA exemption?
Thanks & Regards
Subbu
How the rent paid to parents or spouce will be taxed in thier hand as ” income from other sources” as suggested in the above discussion - please explain.
There is an income head ” Income from House Property” which covers rental income from House Property.
I am working in a private company in Gurgaon and staying at Gurgaon. The company gives me HRA @ 50% of my basic salary. While claiming rebate one of the rule of HRA rebate says 50% of salary for metro city and 40% of salary for non-metro city. (1) Whether Gurgaon comes under Delhi metro city or not? As per Ministry of India O.M. no 11023/1/86-E.II(B) dt. 09.12.86 where it says HRA/CCA at Delhi rates in Gurgaon. Whether the same for claiming tax rebate.
If gurgaon comes under metro city I can get full HRA rebate, otherwiswe I can get 40%, (2) then is the rule of giving 50% HRA of Basic is justified?
I will be obliged to get the reply soon. Thanks in advance
The HRA component is not included in the salary structure, could we take the HRA exemption
HRA (House Rent Allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. As the HRA component is not part of your salary structure you cannot avail this. However,you can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.