7 min read
Updated on May 18, 2023
HRA serves as an important constituent in the salary break-up of people working with any private or public sector organization. HRA allowance is offered on top of ones’ salary and as per one’s company policies as well as the salary of the individual. HRA is especially offered if the employee has a transferable job and pays house rent in the job location. The HRA amount in your salary is eligible for tax exemption as it helps you save money on tax. Let us now understand the meaning and importance of HRA.
HRA is a salary sub-component. The House Rent Allowance deductions are either partially or completely taxable under Income Tax Act (Section 10(13A).
The factors mentioned below are the ones on which the House Rent Allowance calculations depend:
The income tax act of India has various sections which help different people to make their expenses on rent cheaper and convenient to pay. Employees, including public and private sector workers receive a salary which is composed of numerous constituents. To fix HRA, the employee and the employer goes through an agreement, which is mentioned in the confirmation letter offered by the company to the employee. Not just employees, HRA can be used to save tax by the self-employed as well as professionals.
As mentioned above, even the self-employed can claim HRA deductions and exemptions on house rent allowance income tax. Section 80 GG allows them the option to claim HRA benefits. In fact, the same section also permits employees who do not get HRA in their salary to claim rent benefits and exemptions.
Income Tax Act makes the salaried individuals eligible for HRA exemptions under section 10(13A). Since HRA is a critical element of a person’s salary, it should be claimed as per the rules set by the organization that you work for.
The HRA tax deduction is lowest in the below mentioned cases:
Here, by salary we mean basic salary along with commissions received as well as dearness allowance.
In a situation where the employee has rented his/her own house to someone and is living in a rented accommodation, the person can claim HRA exemptions on home loan (if any) as well as on the rent paid.
An employee has to provide the below mentioned documents to claim tax exemptions on HRA:
Tax deductions on HRA can be claimed if you comply by the below mentioned criteria:
Expenditure made towards house rent is exempted under section 80GG of income tax. However, this deduction can be claimed by employees if they have not claimed for any other exemptions of IT. However, self-employed individuals or the employees who are not given HRA allowance by employers can claim the same exemption under section 80GG.
The HRA calculator is a free to use tool available online. This calculator helps you in estimating the HRA you receive and the tax deductions you can claim for. It is not necessary that every employer would offer you HRA. This is because HRA is not the right of employees, rather it is at the discretion of the employer to offer HRA or not. If your employer is offering you free accommodation in the job location, they may not allow HRA separately. In that case, you cannot claim HRA deductions.
Here are the factors based on which HRA is calculated:
Here are some rules that are applicable for HRA claims:
You can claim the least amount of the above for HRA tax exemption.
HRA benefits can be availed even if the tax claimant is living in his/her parental house. Let’s find out how? Suppose, you live with your parents in their house and your employer offers you HRA benefit as part of your salary. Now, how would you get HRA benefit? In this case, you have the option of paying rent to your parents to claim your maximum house rent allowance. You just need to fill out an agreement of rent with your parents and transfer rent every month to them. This way you can enjoy tax exemption while living in your parental house.
Yes, in case the HRA is up to INR 3,000 per month, it can be claimed without rent receipts. Beyond INR 3000, HRA cannot be claimed without rent receipts.
HRA tax benefit is offered to salaried people under the old tax regime. This tax benefit can be claimed only if the employer offers the HRA component as part of their salary structure and the employee is living in a rented house.
Your HRA cannot be more than 50% of your income. For salaried individuals living in metro cities, HRA exemption allowed is 50%. For people living in non-metro cities, 40% of salary is allowed for tax exemption.
HRA or House Rent Allowance is a part of one’s salary component offered by most employers to employees to claim expenses incurred towards house rent.
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