The best Rules for tax exemption on house rent allowance.
What is HRA? Rules for tax exemption on house rent allowance. If you do a job, you will get House Rent Allowance (HRA) along with your salary. But do you know that rent allowance helps save tax for you? In this article, we will know how House Rent Allowance saves tax.
What is HRA??
It is also their responsibility to make arrangements for the accommodation of the employees who the companies hire. Some companies also provide accommodation facilities to their employees. Companies that cannot do this also give house rent allowance to their employees. It can be more or less according to the category of employees. Often it is in a certain percentage of their salary (Basic Salary and DA).
How to get tax exemption on HRA??
If you get a small amount of HRA House Rent Allowance, you get tax exemption on the entire HRA. But if you get HRA more than 40% (in small cities) or 50% (in big cities) of your salary, you can get tax exemption only on a specific part of HRA. The remaining excess amount is included in the calculation of tax. Ultimately, how much tax exemption you will get on HRA depends on three factors.
How much HRA, i.e., House Rent Allowance, do you get?
What is 40% of your salary? (in small towns)
How much is 50% of your salary? (in metro cities)
What happens when HRA is deducted from 10% of your salary? (Actual rent – 10% of your salary)
According to these three facts, different amounts are withdrawn. Whichever is the least of the three withdrawn amounts, you will get tax exemption only on that amount. Besides, whatever the HRA amount is, that additional amount will be included in the tax calculation.
What is Salary in HRA Tax Calculation?
Note, here, while calculating tax exemption on HRA, the salary we talk about, only Basic Salary, Dearness Allowance, and commission are included. And if the employee does not get these allowances (Dearness Allowance and Commission), then only the basic salary is included in our calculation.
Meaning by commission:?In fact, sometimes the employer or company also gives commission to its employees in a fixed percentage on the turnover achieved in that year.
The best Rules for tax exemption on house rent allowance.
Example of calculation of tax exemption on HRA
Let’s assume that Sanjeev is a salaried employee who gets a basic monthly Rs 15000. Apart from this, he gets Rs 6000 as House Rent Allowance, i.e., HRA. However, he lives in Delhi (Metro City) and pays Rs.7000 per month house rent. Here we are not including Dearness Allowance and Commission for convenience in understanding the calculation.
Now, since all the things are seen on an annual basis in the calculation of HRA, then first add them too. If these three facts are taken out on an annual basis, then they will be as follows-
Annual basic salary= 15000*12= 1,80,000 rupees
Annual HRA=6000*12=Rs 72,000
Amount being paid as annual rent = 7000*12=Rs 84,000
10% of salary for a year = 1,80,000*10% = Rs 18,000
Now let us keep these facts related to Sanjeev’s salary in the formula of HRA.
Total HRA = ?72,000
50% of salary = 50% of Rs 1, 80,000 = ?90,000
Actual rent – 10% of salary = ?84,000 – ?18,000 = ?66,000
In this way, the lowest of these three figures is ? 66,000. This amount will not be taxed. The remaining HRA (?6,000) will be added to Sanjeev’s taxable income.
Documents required for tax exemption on HRA
To get a tax exemption on HRA, you need to provide proof of tenancy. A rent agreement or rent receipt will have to be submitted. The agreement or receipt should contain the rent amount, landlord name, complete property address, date, etc. And The receipt must have the signature of the landlord. The agreement must be signed by both the tenant and the landlord.
If you pay house rent more than Rs 1 lakh annually (8,333 per month), then the PAN number of your landlord will also have to be disclosed to your company. If you do not have a PAN number, you can make a declaration in this regard from the landlord (with a declaration- name, address, and signature) and submit it to the employer.
Usually, it is enough to claim tax exemption on HRA to submit a rent receipt to the company. If the Income Tax Department ever scrutinizes your claim, then other more authentic documents (such as Rent agreement, etc. may also have to be submitted.
If you are not able to submit the rent receipts, then…
Even if you have not been able to submit the rent receipt by the last date fixed by the employer, even while filing your income tax return directly, you can also take advantage of HRA tax exemption based on these.
Tax exemption can also be available in these situations
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Can live as a tenant at the parent’s house
If you live with your parents, you can avail of the tax exemption on House Rent Allowance (HRA) by paying rent based on their receipts. The Income Tax Department legally allows this to happen. But, for this, the property must be registered in the name of your parents (both or anyone). And they should also enter the amount of rent paid by you as income in their Income Tax Return. And yes, in doing so, you will also have to submit documents like rent agreement and proof of cash payments in favor of your claim like a regular tenant.
You have a house but live on rent due to long-distance
Yes, if you have a house but have to live in a rented house due to being far away from the workplace, you can still take advantage of Tax savings through HRA. Just keep in mind that the house in which you are a tenant is not in your name, nor the name of your spouse, children, or any member of the Hindu Joint Family defined as Hindu Undivided Family (HUF). Needed.
If you do not get HRA, but pay rent, then?
It may also happen to an employee that HRA is not available with his salary, but he has to pay house rent. Such people have a different way to save tax under Section 80 (GG). For this, he will have to submit Form 10B with the Income Tax Department.
Under Section 80GG, you can take advantage of tax deduction according to any one of these options (the lowest).
The rent you pay is more than 10% of your total income.
25% of your total income
5000 rupees per month
Out of these three options, you will not have to pay tax on that amount, whichever is the least amount.
Conditions to get this benefit under?Section 80 GG
You, your spouse, or your minor child should not own a house in the city where you are working.
Also You should not have a self-occupied property at any other place
You should not get HRA from anywhere during the entire financial year.
Note:?If you were employed for one month in a financial year (and avail HRA) and were self-employed for the rest of the period, you still cannot avail of tax benefits under section 80GG.
You can also avail of tax exemption on home loans and HRA together
Often the question of people is whether he can take advantage of tax savings on both HRA and interest being paid on home loan simultaneously? The answer is yes; you can take advantage of tax savings on both HRA and home loan principal and interest payments. You provided that you are not living in that house or have given it on rent.
The benefit of tax deduction of Rs 1.5 lakh per annum can be availed under Section 80C on the principal repayment of the home loan.
Under Section 24, the benefit of tax deduction of up to Rs 2 lakh per annum is available on interest repayment of home loans.
However, if you have let out your house, then the amount received from it will have to be included in your annual income.
They do not get benefit from tax exemption based on HRA
Who Cannot Avail Tax Benefits
Live in own house
You can become eligible for a tax deduction on HRA only if you live in a rented house. If you live in your own house, you cannot claim tax benefits based on HRA.
Pay no rent
Even if you live in a house, you do not pay any rent; you cannot claim tax benefits based on HRA. You may be getting such a facility when a relative or acquaintance stays here.
If the house is in the name of the spouse or child
If the house where you are showing yourself as a tenant and submitting documents is in the name of your spouse or child, you are not entitled to the benefit of regular HRA tax savings. Because in this relationship, even if the house is not in your name, it will be considered as yours.
However, if you have done this cleverly, you may benefit from this tax exemption. But, you can get caught in the investigation of the Income Tax Department at any time.
Businessmen or professionals cannot claim
Suppose you do your work, then you are not in the category of salaried. In such a situation, you cannot take advantage of tax exemption based on the amount paid as your rent for the home because this tax exemption facility is only for those salaried employees whose salary includes HRA. By the way, these people can show the rent as an expense of their business.
So, friends, this information about the tax exemption available on House Rent Allowance (HRA). For other helpful information related to tax, saving and investment, see our articles