Tax benefit on HRA

Many taxpayers shell out house rent but can’t claim deductions due to the absence of the house rent allowance (HRA) component in their salary. Under Section 80GG, you can avail of the benefit for the rent even if your salary package does not include HRA, provided you are not eligible for any housing benefit. You will not qualify for this break if you, your spouse or child owns the house you live in. The exemption is limited to the least of rent paid less 10% of total income; or Rs 5,000 a month or 25% of total income. 

If you're a salaried individual, you can claim House Rent Allowance (HRA) to meet your rented accommodation-related expenses. Salaried individuals who live in a rented house can claim this exemption and bring down their taxes. HRA can be fully or partially exempt from tax. Our HRA exemption calculator will help you calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.

If you don't live in a rented accommodation but still get house rent allowance, the allowance will be fully taxable

For most employees, House Rent Allowance (HRA) is a component of their salary structure. Although it is a part of your salary, HRA, unlike basic salary, is not fully taxable. Subject to certain conditions, a part of HRA is exempted under Section 10 (13A) of the Income-tax Act, 1961. 

The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee to save tax. But do keep in mind that the HRA received from your employer, is fully taxable if an employee is living in his own house or if he does not pay any rent. 

Who can avail the tax benefit of HRA? 

The tax benefit is available only to a salaried individual who has the HRA component as part of his salary structure and is staying in a rented accommodation. Self-employed professionals cannot avail the deduction. 

How much of my HRA is exempt from tax?

The entire HRA received is not always fully exempt from tax. The least of the following three will be taken to exempt from tax:

• HRA received from your employer
• Actual rent paid minus 10% of salary
• 50% of basic salary for those living in metro cities
• 40% of basic salary for those living in non-metro cities

The remainder of your HRA is added back to your taxable salary. Our calculator can easily help you figure out your HRA exemption.

The tax benefit is available to the person only for the period in which the rented house is occupied. 

HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner. 

Documents Required:

It is mandatory for the employee to report the Pan Card of the 'landlord' to the employer if the rent paid is more than Rs 1, 00,000 annually. 

Do’s and Don'ts of HRA tax exemption:

1. You have must have a valid rent agreement. The rent agreement must mention all the relevant details such as amount of monthly rent, time period of rent agreement, any utility bills to be paid by you etc. "Make sure that there is a signed agreement between you and the landlord even if they are your parents. The agreement must mention the premises rented by you, other charges such as utility or property tax if payable by you.
2. 'If you do not provide PAN of your landlord then, you cannot claim tax exemption for HRA from your employer while withholding TDS on salary. While Income Tax Act does not restrict the employee from claiming tax exemption for HRA while filing returns but there will be mismatch in the salary income reported in the Form 26AS by your employer vis-à-vis that reported by you in your return.
3. You must ask for receipt for the rent paid every month irrespective of the channel used for making payments. "It is mandatory to furnish rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month." 
4. Remember to deduct tax at source (TDS) @ 5%, from the rent paid to your landlord if you are paying rent above Rs. 50,000 per month. Interest at 1% per month is levied in case you forgot to deduct it and 1.5% per month where TDS is deducted but not deposited. It would also attract the penalty of Rs 200 per day for the period of delay 
5. In case PAN is not available, then your landlord must be willing to give you a declaration to this effect. Confirm this before taking house on rent so that you are able to avail the benefit of HRA exemption from your employer. Along with the declaration, you also need to obtain 'Form 60' dully filled by your landlord, in case PAN is not available. You need to submit these to your employer. 
6. In case of a shared accommodation, then along with the above mentioned details in the rent agreement, it should also mention number of tenants co-sharing the flat, ratio in which rent and how utility bills are to be divided. 
7. Make your rent payments preferably via banking channels instead of cash. Using banking channels helps to provide an electronic trail of money for the transactions occurred.
8. In addition to rent receipts, if your payment exceeds Rs. 1 lakh annually, then it is mandatory for you to provide the PAN of your landlord to your employer to avail the full benefit of HRA exemption. It helps you to lower your TDS deduction. 

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