HRA calculation- How to claim House rent Allowance [HRA]

A guide on Hra calculation and how to claim Exemption.

Salaried individuals who Reside in a rented home Can claim House Rent Allowance (HRA) to lower taxes. This may be partly or completely exempt from taxes. The allowance is for expenditures related to accommodation that is rented. If you do not live in a rented accommodation, then this allowance is completely taxable.

The decision of how much HRA needs to be compensated to the employee is made by the employer based on certain criteria such as the Salary and the city of residence. The house rent allowance is regulated by the provisions of Section 10(13A) of the IT Act.

House rent allowance benefits are only available to salaried individuals. Self-employed individuals are exempt from claiming HRA.
HRA exemption can be available only if the Employee is residing in rented accommodations. In the event the employee resides in his/her own home and doesn’t pay any rent, he/she cannot claim HRA.

In case the employee is residing on a rent and also the rent paid exceeds Rs.1 lakh in one fiscal year after which the PAN details of the landlord need to be submitted along with the HRA claims.

HRA Calculation

The deduction available is the least of the following amounts:
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA

We can understand the HRA calculation better with the following example:
Mr. Ram, employed in Mumbai, has taken up an accommodation on rent for which he pays a monthly rent of Rs 15,000 during the Financial Year (FY) 2017-18 i.e. Assessment Year(AY) 2018-19. He receives a Basic Salary of Rs 25,000 monthly along with DA of Rs. 2000, which forms a part of the salary. He also receives a HRA of Rs 1,00,000 from his employer during the year. Let us understand the HRA component that would be exempt from income tax during the FY 2017-18.Hra Calculation                                                                                       Source: Cleartax

Therefore, in the above example, the entire HRA received from the employer is exempt from income tax.

Some queries which you have to understand for HRA Calculation.

Could I get tax advantages on HRA along with tax benefits on home loan?

Yes, you can claim both tax exemptions collectively. If You’re a property owner paying back house loan but residing in a rented accommodation, then you can get tax advantages for the two cases.

To assert HRA, whom do I pay rent to?

HRA benefits can be claimed if you pay rent to your Landlord, i.e. proprietor of the house in which you live. However, the owner can be anyone including your own parents. But remember that the at least 70% of the rent you pay to your parents receive added to their taxable income too.

Is my landlord’s PAN mandatory to maintain HRA?

If you pay rent in excess of Rs 1 lakh p.a. afterward it Is essential to mention PAN details of your landlord in your tax return to claim tax exemption on HRA.

My employer doesn’t provide me HRA, can I claim the relevant tax deduction?

Section 80GG of Income Tax Act allows a tax deduction to the individual even if he does not get HRA from his employer.

My landlord doesn’t have PAN. How do I claim tax deduction? on HRA?

It is necessary to get PAN particulars of your employer to claim tax benefits on HRA. However, if your landlord doesn’t have a PAN then you have to get a statement or declaration from him regarding the same. It’s better for you to get these details (PAN or declaration) until you occur on rent so as to prevent hassles in the time of filing return.

How to claim HRA when living with parents?

Let us know this with the Support of an illustration:

Let us presume that you work at an MNC at Pune. You get HRA as part of your Salary, but you do not reside in a rented accommodation. Instead, you live with your parents in their residence. Thus, can you claim HRA?

You can do this by getting into a rental agreement with Your parents. In this way, you can pay rent to your parents and claim HRA Benefits. However, your parents will have to show this rent as their income in Their ITR form. If their overall income is within the exemption limit as per Income Tax slab rates, then you and your loved ones can Save a bit of money.

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