The HRA exemption is the most typical tax exemption claimed by salaried class employees in India. Let us help you understand how to claim HRA when it comes to ITR.
The full form of HRA is House Rent Allowance. HRA is an amount paid by an employer to employees to cover the expense of living in rented housing. Most private and public sector employers/associations pay HRA as one of the sub-components of income to their workers.
Salary earners who reside in a leased house can easily know how to claim HRA in ITR under Section 10(13A) of the Income Tax Act.
The worker has to submit Form 12BB to the employer to assert exemptions like HRA, LTA etc. and income tax deductions under Chapter VI-A. It should be noted that self-employed individuals can also claim exemption from tax on rent paid under Section 80GG of the Income Tax Act.
When filing an income tax return, each worker must notify the income tax department of the analysis of their salary. This salary allocation will show the HRA that the worker is obtaining and can assert the tax exemption.
The HRA that an employee acquires is affixed to the part of the worker’s salary; therefore, the HRA advances with the employee’s salary. If there is an upsurge in the employee’s HRA, the employee can claim a higher HRA exemption for this assistance with the tax regimes.
Who can claim HRA?
Anyone can claim the HRA exemption for the time the person lived in rented housing by meeting the following requirements:
- You should be a paid worker: Tax benefits associated with HRA are obtainable only to salaried people, and a self-employed individual cannot use this exception.
- You get HRA as the cut of your pay package/CTC: CTC or pay package involves different elements like basic pay, allowances, perks etc. To avail of this exemption, you must confirm that your CTC includes HRA.
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You live in a leased house: The exemption can only get proclaimed if you live in rented housing, i.e. you pay rent. If you live in your residence as you cannot pay rent.
You’re presumably wondering if you live in your parent’s house. Can you claim this exemption by paying rent to your parents? The answer is yes, and you can claim the exemption by giving rent to your parents.
However, your parents must notify the rental income they acquired from you on their tax returns. It is good that you pay the rent by bank transfer and sign the tenancy contract.
- Notify the employer of the rent paid by presenting a rent receipt: You must tell your employer of your rent and provide proof of tenancy. If the annual rent surpasses Rs. 1,00,000, then the PAN of the landlord is to be revealed.
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Entitlement to Return: Many times, it is discovered that businesses do not grant HRA exemption in Form 16 due to the unavailability of comprehensive attributes.
If your HRA claim has not been evaluated on Form 16, you can claim the exemption straight on your tax return.
How much can exemption on HRA get claimed?
The amount of HRA exemption a worker can claim relies on several elements. The tax department has laid down regulations to be obeyed while understanding how to claim HRA in ITR by a taxpayer.
The exemption to which the taxpayer is allowed is at least one of the following three amounts:
- The actual charge of housing assistance that the taxpayer will obtain;
- Fifty per cent of the taxpayer’s basic salary+dearness allowance (if the taxpayer lives in a metropolitan city) or forty per cent of the taxpayer’s basic salary+dearness allowance (if the taxpayer lives in a non-metropolitan area); or
- Actual rent paid by the taxpayer minus 10 per cent of the aggregate of the basic salary and the taxpayer’s allowances
A taxpayer can look at this example to comprehend the amount that can get claimed as an HRA exemption. Consider that the basic pay and maintenance allowance is Rs. 30,000 per month. The HRA received by Radhika from her employer is Rs. 20,000 per month. She lives in a metropolitan city and pays a monthly rent of Rs. 15,000 for her housing necessities.
From this example, we should believe that the employer has subtracted the entire TDS from Radhika. Therefore the taxpayer can declare the total house rent allowance exemption while filing his income tax return.
According to the above example, the exemption that the worker will be able to claim is the least of the following three amounts:
- The actual payment of House Rent Allowance received by the taxpayer is Rs. (20,000*12) or Rs. 2,40,000
- Fifty per cent of the taxpayer’s basic pay plus dearness allowance (as the taxpayer is a resident of a metropolitan city), which is Rs. (30000*50%*12) or Rs. 1,80,000
- The actual rent spent by the taxpayer minus ten per cent of the sum of the basic pay and maintenance assistance of the taxpayer, which is Rs. (15000 – 30000*10%)*12 or Rs. 1,44,000
Accordingly, per the given regulations of the Income Tax Department, in this example, the taxpayer will get qualified for an exemption of Rs.1,44,000 from the house rent allowance.
Since the tax exemption that the worker in the example gets is Rs. 1,44,000, then the balance HRA amount of the employee, which is Rs. 96,000, is fully taxable to the worker.
How is the HRA tax exemption estimated?
Before learning how to claim HRA in ITR, you must first understand that HRA depends on four components:
- Salary (basic salary + DA)
- HRA salary segment
- Rent paid a
- The area of your rental accommodation.
The available deduction is the lesser of the following amounts:
- Actual obtained HRA
- 50% [of Basic Pay + DA] for those living in metro municipalities
- 40% [of Basic Pay + DA] for those living outside metropolitan provinces
- Actual rent disbursed should be less than 10% of basic pay + DA
How to claim HRA exemption when filing an Income Tax Return (ITR)?
Once the taxpayer has learned how to claim HRA in ITR through estimating the amount of HRA exemption that he is permitted to claim from his tax liability, he must claim this exemption when filing his income tax return.
When filing an income tax return, the taxpayer must accurately choose the form that applies to the taxpayer.
While selecting the correct form, which in most cases would be the ITR-1 form, the taxpayer will have to enter the analysis of his salary as instructed by the form. Here, the taxpayer must provide the basic salary, which does not contain all allowances and perks.
Subsequently, the taxpayer will have to enter the number of his assistants that are not exempt. Under this item, the taxpayer will have to enter the non-tax-exempt amount of their HRA and add it to any other non-tax-exempt reimbursements they obtain.
The taxpayer must also announce the amount of HRA he claims as tax exemption.
While filing ITR-1 on the Income Tax Department website, the taxpayer must click on the fifth tab, “Tax Paid and Verification”. In this menu, there will be a choice to enter “Exempt Income”, which includes the “House Rent Allowance” option under the “Other” button. The taxpayer should enter the exempt portion of his HRA in this item.
The significance of maintaining evidence when applying for an HRA exemption
The tax office does not require the taxpayer to introduce proof of rent payments when the taxpayer presents his tax return.
However, while the income tax department is processing the taxpayer’s claims, it may need advance proof of rent payment through a rental agreement or financial reports.
To avoid any unfavourable outcomes, it is essential to secure that the taxpayer has his rental records in hand in case he needs to deliver them to the satisfaction of the Income Tax authorities.
Another benefit of a tenancy agreement is that the taxpayer can give a duplicate of the agreement to his employer so that the employer can deduct the TDS every month rather than the HRA exemption to which the taxpayer is qualified.
Not every employer delivers this alternative; regardless, the taxpayer can always claim an exemption from HRA at the end of the year and obtain the entire amount back.
When do you have to use a landlord pan?
If you have taken a house on rent and are spending more than Rs 100,000 per annum – do not forget to cite the PAN number of the landlord. Otherwise, you may forfeit your HRA exemption. A landlord without a PAN must sign an affidavit that he does not have a PAN according to Circular No. 8/2013 of October 10, 2013.
Tenants giving rent to NRI owners have to deduct TDS of 30% before making rent expenditures.
What if you don’t receive an HRA?
If you pay rent for living in residential housing but do not receive HRA from your employer, you can still claim a deduction under Section 80GG. Requirements that must be satisfied for this deduction to apply include:
- You are self-employed or a paid person
- You never obtained HRA during the year for which you are claiming 80GG
- You or Your spouse or Your minor child or HUF of which You are a member – do not hold any lodging establishment, perform office responsibilities, employ or carry on business or profession where You currently live.
If you own a residential property other than the location detailed above, you should not claim the privileges of that property as a resident. Other property will be treated as rented to claim the 80GG deduction.
How to apply for HRA if you live with your parents?
Let’s comprehend how to claim HRA in ITR if you are living with your parents with an example.
Shyamli works in a multinational company in Bangalore. Although her company provides her with HRA, she lives with her parents in their house, not in rented accommodation.
Shyamli can pay rent to her parents and claim the assistance provided. She must sign a rental contract with her parents and disseminate money to them monthly.
Shyamli’s parents also have to notify the rent she spent as income on their tax returns. If their other revenue is below the basic exemption brink or taxed at a lower rate, they can preserve on family income tax.
Conclusion
House Rent Allowance or HRA is a subsidy paid by employers to workers for the exhaustive objective of paying rent for their accommodation. HRA forms a portion of the salaries paid by the employer and is taken into account by the employer while estimating the cost to the corporation or the employee’s CTC.
House rent allowance comprises the basic part of the employee’s earnings and is typically paid by the employer as detached from the employee’s basic salary.
When it comes to how to claim HRA in ITR, many people get confused about how to do it and what to do it. Individuals who have House Rent Allowance (HRA) as a component of their salary structure can save the tax they have paid rent in FY 2021-22. To save tax on HRA, you must have evidence of rent paid during the accounting year. The evidence can be the rental verification, receipt accepted, or the rental contract with the owner.
FAQs
When can you claim tax exemption on house rent allowance?
If you pay for your rented accommodation, you can assert tax exemption on HRA.
How can you claim exemption on an HRA?
You can assert HRA exemption by presenting proof of rent receipts to your employer. Also, you can claim the HRA exemption while filing your income tax return.
If you are a self-employed individual, can you claim an HRA exemption?
A self-employed person cannot claim an HRA exemption, and only a salaried person with an HRA element in their salary package can assert an HRA exemption.
What is the tax liability in case your entire HRA is not tax-exempt?
Your employer deducts TDS at the relevant tax slab rates on the remaining HRA, which is not tax-exempt.
Who can claim exemption on HRA?
Salaried workers who acquire house rent allowance as a component of salary and pay rent can assert HRA exemption to lessen their taxable salary entirely or partially.
Which section of the income tax does involve HRA?
House rent allowance obtained by a worker is partially or entirely exempt as per the rules laid out in Section 10(13A).
