That HRA, or House Rent Allowance given for expenses related to rented accommodation, is not just a benefit given by companies to it employees. For you, the employee, it can also help you save tax.
Salaried individuals who live in a rented house can claim House Rent Allowance or HRA to lower taxes, which can be partially or completely exempt from taxes. Please note that if you do not live in a rented accommodation, this allowance is fully taxable.
To help you understand the tax benefits on HRA, we have compiled seven questions that are frequently asked.
Q1. “I have never understood the tax exemption calculation on HRA. Can you tell me how?”
A. The deduction available is on the least of the following amounts:
- Actual amount HRA received
- 50% of sum of Basic salary and Dearness Allowance, for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of salary
You can quickly calculate the tax benefit on your HRA by clicking here.
Q2. “What if I have a Home Loan as well? Can I claim deduction on home loan interest?"
A. Yes. HRA has no bearing towards your home loan interest deduction. Both can be claimed simultaneously.
Q3. “Do I have to get PAN of my landlord also?”
A. If you have taken a house on rent and are making a payment in excess of Rs 8,333 per month, remember to obtain the landlord’s PAN or you may lose out on the HRA exemption. Landlords without a PAN must be willing to give you a Form 60 declaration.
Q4. “My employer doesn’t provide me with HRA? Am I losing out on saving tax?”
A. Not at all. If you are making payments towards rent for any furnished or unfurnished accommodation occupied by you for your own residence, but do not receive HRA from your employer, you can claim deduction under section 80GG.
However, there are certain conditions that must be fulfilled to claim this deduction:
- You are self-employed or salaried
- You have not received HRA at any time during the year for which you are claiming 80GG
- You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.
In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. That other property would be deemed to be ‘let out’ in order to claim the deduction under section 80GG.
Q5. “So how do I claim Section 80GG deduction?”
A. The least of the amounts below will be considered as the deduction under this section:
- Rs 5,000 per month
- 25% of Adjusted Total Income
- Actual Rent less 10% of Adjusted Total Income
Adjusted Total Income means Total Income less long term capital gain and short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).
Q6. “I am living with my parents. How do I claim HRA deduction?”
A. Let’s understand this through a case: Ms. Anita works at an MNC in Bangalore. Her company provides her with house rent allowance. But she doesn’t live in a rented accommodation; she lives with her parents instead. How can she make use of this allowance?
Anita can pay rent to her parents and claim the allowance, provided they own the place they currently live in. All Anita has to do is enter into a rental agreement with her parents and transfer money to them every month.
This way Anita can make a nice gesture and give something back to her parents, and also save some tax.
Q7. “What should I do if I forgot to submit the rent receipts to my employer?”
A. The good news is that HRA can be claimed directly on your income tax returns. If you forgot to submit rent receipts to your company HR at the time of proof submission, you can claim HRA later on when you file your IT Return. To claim this, adjust your taxable income to include HRA and calculate tax is payable on the lowered taxable income. You will then be able to claim a refund if tax has been deducted in excess.
Hope you found these seven questions useful. To know more on Tax solutions, visit YES Tax Solutions.
*The full version of this article by our knowledge partner Cleartax can be accessed at Cleartax.in