What is HRA Exemption from the Income Tax Section 10(13A)
HRA i.e. House Rent Allowance is the amount paid as a part of salary by the employer to the employee. An employee can get tax benefit on this HRA amount if he is living in rented house and paying rent. This simply means that if your salary skip has HRA component, then you don’t have to pay income tax on this amount. However, you can’t save income tax on the full amount.
There is a rule on how much HRA you can claim and save tax on it. In this article, we will look at the rules and calculations. But before we move ahead, here is one good news.
If an employee does get HRA as part his salary, but paying rent, even then he/she can claim some part of HRA for saving tax and there is a separate calculation for that. We will also look at that today.
How to Calculate HRA amount?
Let's now see how the HRA is calculated, but the calculation depends whether you are getting salary component from your employer or not (it should be mentioned in your salary slip).
Case 1 – When you get HRA from employer
Actual HRA offered will be the lowest of the following 3 things:
- Actual HRA received.
- 40% (in the non-metro city) or 50% (in the metro city) of your salary.
- Actually paid to rent is reduced from 10% of basic salary.
Let’s take an example of how HRA is calculated.
Example: An employee who lives in a metro city, has basic salary Rs.30,000 per month and the HRA part is Rs.15,000. The actual rent he pays is Rs.10000 per month. Then the exemption he will get is –
- Actual HRA received = (15,000 x 12) = 1,80,000
- Actual rent paid – 10% of basic salary = (10,000 x 12) – [(10/100) x (30,000 x 12)] = 84,000
- 50% of basic salary = (30,000 x 12) x 50/100 = 1,80,000
Now the lowest amount in above calculation is 84,000. So the employee will get exemption of Rs.84,000.
Case 2 – When you don’t get HRA from employer
If you are living in a rental house or paying for your accommodation and do not get HRA from your employer then also you are applying for the tax deduction in income tax return. These people can also claim for HRA exemption under section 80(GG) of IT act.
Actual HRA offered will be the lowest of the following 3 provisions:
- Rs.5000 per month
- 25% of your total income
- Actually paid rent is reduced from 10% of basic salary.
Though there are some conditions which should be fulfilled if you want tax deduction in this case. The criteria are as below:
- You should be salaried or self-employed and be paying rent for accommodation.
- You haven’t received any HRA in the financial year in which you are claiming for HRA exemption.
- As per HUF our spouse or minor child should not own house registered on their name.
If you do not meet any of the above criteria then you can’t claim for HRA. Here is the chart which explains the same thing which we talked above.
Important points regarding HRA?
- HRA is applicable only to the salaried person and not to those who are self-employed. If a person is living in his/her own house then also he/she can’t claim for HRA benefits.
- If the employee living in a rented house is paying more than Rs.1 lac on rent in one financial year then he has to submit PAN details of landlord along with HRA claim.
- If a person is living in his parents’ house and paying rent to them, he is applicable for HRA claim. However, he cannot claim if he states that he is paying rent to his spouse or child.
Documents required for claiming HRA
The first thing you need to know is that you don’t need to submit anything to Income tax department to claim HRA. You only need to submit the documents to your employer and your employer will verify documents and give you the exemption and then issue form 16 and include these details in that form.
If there is any inquiry by the income-tax department, only in that case you need to present further documents asked by them.
So basically at the start of the year, you need to update your employer on the rent you are paying each month and based on that data the employer will deduct the TDS from your salary. Finally, at the end of the year, you will have to submit following documents
- Rent receipts or the proof of paying rent
- Form 12BB
- PAN card of the landlord if the amount is above Rs.,1,00,000.
- Some employers may ask for leave and license agreement
Also, In last few years, many tax payers were found submitting fake documents for HRA claim in many cases. This is the reason that IT department is asking for more and document while claiming for HRA exemption. If there is any scrutiny by income tax department, you might have to submit some more documents like
- Electricity bills
- Water supply bill
- Agreement or a letter from housing society
Some cases when charges of IT department can make inquiry are
- If a person has a house loan and also applying for HRA.
- If a person living with parents without paying any rent but still apply for HRA and says that he pay rent.
- Adding higher amount in receipt than he actually pays.
Download HRA Calculator U/s 10 (13A)
We have created a nice HRA calculator and analysis tool, which will help you to calculate your HRA and also help you know how much HRA are you not able to utilize and how much is it covering your rent paid.
If you look at the same example which is mentioned above in this article (salary = Rs 30,000 per month, HRA = Rs 15,000 per month, and Rent paid = Rs 10,000 per month, and living in metro) and if you do the HRA analysis, you will find out two things
- He is only able to claim 46% of his HRA provided to him (84k out of 1,80,000)
- He is able to cover 70% part of his rent paid through HRA (84k out of 1,20,000)
Can you claim both HRA & deduction on home loan interest?
If you have bought a house in a different city and you are doing the job in a different city, then, in that case, you can claim HRA benefits as well as home loan interest too. However, if you have the house in the same city of your job, you cannot claim the HRA benefits.
Housing.com has explained it in a nice way.
