House Rent Allowance (HRA) Tax deduction FAQ

by Abhinav Gulechha on November 14, 2013

House Rent Allowance is exempt subject to conditions under Section 10(13A) of the Income Tax Act.

If you are employed, in all likelihood, you must be getting House Rent Allowance (HRA) as part of your salary. You have to deal with House Rent allowance at 3 points during the year:

  • As part of filling investment declaration in April-May, you have to specify the rent paid per month. Your employer will use this info to calculate your monthly TDS deduction from salary.
  • When the employer calls for proof of investment, generally you are required to provide rent agreement copy + rent receipts (each company has a different policy, some are strict, some are lax…)
  • At the time of filing income tax return, your form 16 will contain an exemption relating to house rent allowance. If you have forgotten to claim, you can claim now

Claiming House Rent Allowance deduction involves some calculations, and then there is paperwork involved, hence a lot of queries and confusions. Hence, I have tried to compile some FAQs to help you claim the right deductions.  I will be really happy to answer any queries of readers in this regard

Who can claim House Rent Allowance?

Only if you are in employment and getting a “salary”, you can claim deduction of house rent allowance. In case you are a self-employed professional, no sweat!  -though you cannot claim house rent allowance exemption, you can claim exemption under section 80GG (I wil do a detailed post on that section in coming days).

How to calculate exemption in respect of House Rent Allowance?

When you are calculating HRA for tax exemption, consider the following points:

  • Your Salary
  • HRA received in your salary
  • House Rent paid by you: You can get tax exemption only when the house rent paid by you is more than 10 per cent of your salary.

•     Place of residence: If you are living in a metro city (Mumbai, Kolkata, Delhi or Chennai) then tax exemption on HRA is 50% of the basic salary, while that for non-metro cities is 40% of the basic salary.

Simple steps are given below to calculate your taxable amount in HRA:

A: Find out how much HRA you have received in your salary

B: Calculate 50 % of your basic salary (if living in metro) else 40 % of your Basic Salary

C: Calculate excess rent paid over 10% of your salary (Actual rent paid – 10% of your salary), that will be the amount that is fully exempted from tax.

D: Taxable amount:  (HRA Received – Excess Rent paid over 10% of salary) = A – C

Sample example to calculate tax exemption on HRA

Mr Amit earns a basic salary of Rs 50,000 per month and lives in a rented apartment in Mumbai. He pays Rs 25,000 per month as house rent. The actual HRA he receives is Rs 30,000. How much will be his taxable amount in HRA received by him?

  • Actual HRA received                                                   30,000
  • 50 per cent of the basic salary,(metro City)                25,000
  • Excess of rent paid over 10% of salary:     25,000(Actual rent) – Rs 5,000(10% of 50,000)        20,000,

So on the above amount of Rs 20,000, he will get tax exemption

  • Taxable Amount: (HRA received-Exemption on HRA) = Rs. 30,000 – 20,000= Rs. 10,000

Important note:

If the above mentioned factors remain constant throughout the year, then exemption can be calculated on an annual basis, however, if even a single parameter changes, then house rent allowance exemption has to be done monthly and summed up for year.

For this purpose, download this calculator here that will help you calculate the correct exemption for the year:

DOWNLOAD HRA EXEMPTION CALCULATOR

Can I get tax exemption for the entire year even if I had lived in a rented accommodation only for 2 months in that year?

Tax exemption for house rent allowance is allowed only for that part of the year in which you have lived in a rented accommodation and rent is paid by you.

If you have lived for rent for only 2 months, you can use the calculator and enter rent paid details for only 2 months, for rest of the months, you will have to enter zero. The calculator will automatically calculate and grant you exemption for 2 months and return the exemption amount.

While calculating tax exemption on HRA, only salary of the period during which rental accommodation was occupied will be considered. Also, salary is determined on due basis( considering basic salary, dearness allowance and commission). This means that if you receive due salary of earlier years or advance salary for future years, it will not be considered while calculating the tax exemption.

In what cases I am not eligible for tax exemption in respect to HRA?

You will NOT be eligible for tax exemption on HRA if,

  • If you live in your own house,
  • If you live in a house where you don’t pay any rent i.e., living in a relative’s place etc
  • If the rent paid by you is less than 10% of your basic salary.
  • If you pay house rent to your spouse, this does not qualify for exemption as she is not the owner of the house.

But you can claim exemption on rent paid to others including parents, brother, sister in-laws etc provided that they own the house and registry is in their name.

Can I claim for tax exemption if my rent payment is due and not paid?

Also, you need to pay the rent before claiming for tax exemption. If rent is due but not paid, you would not be eligible to get tax exemption. A proof of rent payment (receipts from the landlord) needs to be provided to the employer while calculating the HRA tax exemption in the monthly tax calculation.

Can I consider my wife’s salary also for claiming tax exemption?

If both husband and wife are working and living in the same rented house, both can claim HRA subject to the share of rent paid by them individually. Both can claim exemption up to their share of rent paid by them.

Do I always need to provide PAN details of my landlord while claiming for tax exemption?

You need to provide PAN details of landlord if rent exceeds Rs. 1.0 lac in a year.

Also note that Income Tax Department tightened its focus on bogus HRA Exemption claimed by salaried employees in income tax returns. Refer to this article on economic times here 

What if my landlord does not hold PAN Card? Will i get tax exemption in that case?

According to the CBDT circular, if your landlord does not have a PAN, he has to provide a declaration with his signature and his complete name and address, that he does not have a PAN card. Along with it, he has to identify himself by attaching valid identification proofs.

I am having a property which is under construction, can i avail HRA tax exemption on this property?

No, as under construction property does not qualify for tax exemption.

I am having Home Loan, can i still claim for tax exemption on HRA?

Well Home Loan and HRA does not have an impact on each other.

If  your own home is rented out or you work from another city etc then As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. Please account for any rental income you receive from the property you own under income from House Property.

What are the Proofs to be submitted while claiming for tax exemption on HRA?

Following documents as proofs are required to be submitted in order to avail HRA exemption benefits.

Rent receipt from Landlord, Rent Agreement from Landlord and Landlord’s PAN details

When do i need to provide rent receipts for availing the HRA exemption?

You need to provide proof of rent paid by you in the form of rent receipts. If the amount of rent paid is less than Rs 3000 the submission of rent receipts is not mandatory, otherwise submission of rent receipts is necessary for availing the HRA exemption.

Do I  need any other supporting document when paying rent by cash?

Also, if the rent is paid by cash and the amount is more than Rs 5000, then on the rent receipt a revenue stamp of Rs 1 is required to be pasted on the rent receipt and signed across by the landlord.

Details of HRA in Form 16

Having submitted the necessary proofs for claiming tax exemption and fulfilling other necessary conditions to get tax exemption, you can find your HRA details in Form 16 provided by your employer.

Below screen shows the HRA tax exemption in Form 16.

House Rent Allowance (HRA) Tax deduction FAQ

Same details you are required to fill in your Income Tax Return Form,

ITR1 Form

There is only one column in ITR1”Income From Salary” for filling up your chargeable Income earned as Salary or Pension. Here in this column you are required to fill your Gross Salary which includes all deductions, allowances etc. Below is the screenshot of ITR1, here in the column marked in red, you have to fill your Gross Salary details.

House Rent Allowance (HRA) Tax deduction FAQ

ITR2 Form

Below is the screenshot of Schedule S in ITR2 Form.

  • Salary (Excluding all exempt/non-exempt allowances, perquisites & profit in lieu of salary ) should be filled from Gross Salary column shown in Form 16 screenshot above.
  • Fill the other matching columns like Profits in Lieu of Salary, Value of prerequisites from the above Form16.

House Rent Allowance (HRA) Tax deduction FAQ

If you have forgotten to claim for HRA tax exemption last year, you can still claim it now.  This time the taxable income would be more, because employer would have deducted tax on it. Now when you claim it in ITR you are likely to pay less tax this time and your tax liability will reduce. There are some cases where you have paid more tax than due you might get refund also.

Hope this article was useful to you. For any queries or suggested please write to us.

 

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Abhinav is a Fee-Only Certified Financial Planner (CFPCM) professional & a SEBI Registered Investment Advisor (RIA). He is the Founder of M/s Soham Financial Planners where he provides authentic, unbiased and holistic financial advice and mentoring to help families plan and organise their financial life and move confidently in direction of their life’s most important goals. By qualification, he is a Certified Financial Planner (CFPCM) and a Chartered Accountant (ACA), and has a 10+ years of industry experience. He has till date written 150+ posts on this website as well as contributed extensively to media like Moneycontrol, The Economic Times, Business Standard, Dainik Bhaskar etc. and also reputed journals /industry magazines. He has also served as a visiting faculty at a couple of financial planning colleges in Mumbai. He is also a member of The Financial Planners’ Guild, India (FPGI).

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