House Rent Allowance – HRA
House Rent Allowance is an allowance that an employee gets from their employer so that they can meet their housing requirements. Like, food allowance, a rent allowance is given to the employee so that they can rent out a house for themselves. The home rent allowance is a taxable fund when in the hands of the employee or the person receiving it. The Income Tax Department allows an income tax deduction on the house rent allowance under the Act’s Section 10 (13 A). A tax exemption is granted on the rent allowance received by the employee.
The house rent allowance is a type of income as it is given to an employee by an employer. Hence, it is treated like an income and income tax is imposed on the allowance income. If income tax is imposed on it, then, it is also eligible to get an income tax deduction, accordingly.
1. Should receive the allowance
To be able to claim the tax deduction and to be eligible to avail the income tax exemption, the most important thing is to be subject to receiving a house rent allowance from your employer so that you can meet your sheltering needs.
2. Should stay at a rented place
To be able to get the tax deduction on house allowance, the person needs to stay in a rented placed and pay the rents duly. The person will not be eligible for the house rent allowance in case they stay in a house they own. Only rented apartments or houses will be accounted for.
3. How much tax can be exempted?
There are 3 factors that are considered while calculating the deduction on HRA, they are as follows:
- The rent allowance that is given by the employer.
- The actual rent that you are paying minus 10 % of your basic salary.
- 50 % of your basic salary in case you are living in a metro city and 40 % of your basic salary if you are living in a non – metro city.
After the consideration of all these factors, the least amount of tax exemption will be allowed on your house rent allowance.
4. Proof of rent
To show that you are residing in a rented house, you need to have a proof that you are paying rent and residing in that particular house. You cannot self – declare the rent payment proof. You need to have a rental payment proof which is a rent receipt. This rent receipt should be signed by the owner of the house that you have rented and this receipt is supposed to be given to your employer. But, you do not need to give any rent receipt of the rental proof in case you are receiving an amount up to INR 3000 per month as house rent allowance.
5. Paying rent to relatives?
An individual can claim for tax exemptions even if they have rented a place which is owned by a close relative and pay the rent amount to them duly. If you are staying at a home which your mother owns and you are paying a certain amount of rent money per month, then you are eligible to claim the tax deductions for your house rent allowance.
6. I stayed for less than a year on rent
If you were residing in a rented apartment or a home for, let’s say, 7 months and then you shifted to your own house, you can claim tax deductions for the time duration that you rented the place, that is, in this case, 7 months. You will not be able to claim for the whole year, but only for the time that you were staying on rent.
7. Is double tax deduction possible?
No. Double tax deductions are not possible. This arises when 2 people in your household are earning incomes and want to claim tax deductions on the same income. Let us say, you and your mother, both want to claim a HRA exemption on your rent which is INR 50,000. But, this is not possible. So, what you can do instead is that you split up the rent onto your allowances. If, each of you pays INR 25,000 as rent per month, then you can claim the exemption on the amount that your allowance is paying.
8. Will my whole HRA be exempted?
No! You entire house rent allowance cannot and will not be exempted from the tax. You will have to pay the basic tax; you will just be given a deduction. If you reside in a metro city, then the deduction will be 50 % of your salary and 40 % of you salary if you reside in a non – metro.
9. What makes me eligible to claim exemptions on HRA
If you are staying in a rented home and paying your rents duly, you are eligible to claim tax deductions under the Section 80 G G of the Income Tax Act. The deduction is only open to the people who have not claimed any deductions for the rent paid or have not benefited from the rent allowance or the ones who have not claimed the HRA which is Exemption for house rent allowance.
10. Is tax deduction possible on the interest paid on home loans as well?
Income tax deductions, on home loans, are available on the interest that you pay for the home loan you have taken up under the Section 24 of the Income Tax Act. The interest amount’s deduction is allowed under the Section 24 and the income tax deduction for the principle amount of the home loan taken up is allowed under the Section 80 C of the Income Tax Act. Buying a home is a tedious task; make it easier by getting a tax deduction on the interest for your home loan.
These are the most important 10 things about HRAs you should absolutely be thorough with before putting any claim forward.