HRA (House Rent Allowance) is the major component of salaried structure for the employees. It is a part of the salary unlike basic salary, is not fully taxable. According to the income tax act part for the HRA gets fully exempted under section 10(13A).
The amount of HRA exemption is deductible from the total income before arriving at a taxable income. This helps the employee in saving tax. If an employee is living in his own house or does not pay any rent then the HRA received is fully taxable.
Who can avail HRA?
The tax deduction of HRA is only available to salaried employee who has a HRA component as part of his salary and is staying at a rented accommodation. Self-employed professionals cannot claim for this tax deductions.
How much is exempted?
The exemption for HRA benefit is the minimum of
- Actual HRA received
- 50% of salary if living in metro cities, 40% for non-metro cities.
- Excess of Rent paid annually over 10% of annual salary.
The tax benefit is available to the person only for the period in which the rented house is occupied.
The documents required for HRA exemptions are rent receipts or the rent agreement with the house owner.
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 or if it exceeds more than 15,000 per month.
There are also some cases in claiming HRA tax benefit.
Paying rent to family members:
The rented premises must not be owned by the person claiming the tax deduction. So if you stay with your parents and pay rent to them then you can claim that for tax deductions as HRA.
Own a house but staying in a different city:
One can avail the simultaneous benefit of deduction available for home loan against the interest paid and principal repayment and HRA in case your own home is rented out or you work in other city.
Individual who don’t get HRA but pay rent?
There may be some employees who might not have HRA component in their salary structure. Also a non-salaried individual might be paying rent. For them Section 80 (GG) of the income tax act offers help.
An individual paying rent for a furnished and unfurnished accommodation can claim the tax deduction for the rent paid under section 80 (GG) of the IT act, provided he is not paid HRA as a part of his salary by furnishing Form (1B).
Under this section, the total income is calculated as gross total income minus long-term capital gains ,the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under section 80C to 80U, except Section 80G.
While claiming tax deduction for HRA one must remember that the individual himself or as a member of HUF must not own any accommodation. If individual owns any accommodation and earns rent from it then tax deduction is not allowed.