HRA Exemption Rules: How to Save Tax on House Rent Allowance

Updated: 03-09-2019 06:09:31 AM

What is HRA?

Salaried individuals living in the rented houses are eligible to claim Housing Rent Allowance (HRA) for income tax deductions. HRA is a fixed component of your gross salary provided by the employer. Under section 10 of the Income Tax Act, 1961, you can claim tax deductions for HRA either in full or partially. However, it should be noted that HRA can only be claimed when the salaried person lives in a rented premise.

How to calculate HRA?

It is not like you can always claim the entire HRA component of your salary for tax savings. Actual HRA which can be claimed is dependent on multiple factors including your salary, HRA component of your salary, the rent paid, and location of your rented residence.

The deductions available is the least of the following amounts:

• Actual HRA received
• Actual rent paid reduced by 10% of your basic salary+ DA
• 50% of the basic salary if the taxpayer is living in a metro city.
  or 40% of the basic salary if the taxpayer is living in a non-metro city.

What if my employer does not provide me with HRA?

This may be quite possible that your salary structure does not have a component for HRA. In that case either you can ask your employer to restructure your salary or you can still claim HRA under Section 80GG of the Income Tax Act.

Also Read: How to Claim Income Tax Deductions Under Section 80GG?

To whom can I pay the HRA?

The HRA is paid as rent to the owner of the property in which you are living. It is mandatory to provide the PAN card details of the landlord if you are paying and claiming a HRA of more than Rs.1,00,000. You also need to provide rent receipt while claiming HRA.

In case you are paying the rent to an NRI landlord, you should not forget to deduct 30% TDS before making the payment of rent.

Also, it should be noted that if your living in a house owned by your parents, you can pay rent to your parents and claim the HRA. However, it is mandatory that at least 70% of that rented income must be declared by your parents in their income tax returns.

Can I get tax benefits on interest paid on home loan along with the HRA?

Yes, you can claim tax deductions for both simultaneously. If you are a homeowner paying a home loan but living in a rented accommodation, you can avail of tax benefits for both the cases.