Usually, relocating to a new city involves you renting out an apartment. For some people, renting is an option even when they are in the same city but are starting their career. Fortunately, when you rent an apartment, employers provide support by reimbursing the amount. Let’s look at what this is.
Regulated by the provisions of Section 10(13A) of the IT Act, the House Rent Allowance (HRA) makes up a part of an employee’s salary. This amount paid by the employers is based on certain criteria like the basic salary, city of residence and so on. The basic benefits of HRA are the tax benefits you can claim in your income tax returns.
The tax exemption on your HRA is the least of the following.
Actual annual HRA received from your employer
Actual amount of rent you pay annually minus 10% of your annual salary
50% of your basic salary, if you live in a metro city
40% of your basic salary, if you live in a non-metro city
To get the maximum tax benefits on your salary, you can ask your employer to restructure your salary.
Let’s say you live in a metro city and have a monthly basic salary of Rs 15,000. That makes it Rs 1,80,000 annually. You receive Rs 7000 as HRA every month, which makes it Rs 84,000 annually. But, the actual rent you pay is Rs 8,400 every month, making it Rs 1,00,800 annually. Let’s also assume that you have some other incomes and the tax rate applicable to your income is 20%.
To avail tax benefits, the least of the following annual amounts is exempted.
Actual annual HRA received = Rs 84,000
50% of your basic salary as you live in a metro = Rs 90,000
Actual amount of rent you pay annually minus 10% of your annual salary = Rs 82,800 (Rs 1,00,800 – Rs 18000)
In lieu of the above calculation, though you receive an annual HRA of Rs 84,000, only Rs 82,800 gets exempted from tax. The balance of Rs 1,200 is added to your income on which a tax of Rs 240 (20% tax slab) is payable.
Take a note of the following rules applicable for HRA claims.
Your HRA can’t exceed more than 50% of your basic salary.
You can’t claim for the total amount of rent you pay.
You can avail tax benefits of HRA along with a home loan.
You can also pay rent to your parents and collect a receipt for your HRA claim. However, you can’t do this with your spouse.
If your rent exceeds Rs 1 lakh, you will need to submit your landlord’s PAN card details. In case, he/she doesn’t have one, they can provide a self-declaration.
30% tax from the rent amount is to be deducted by you in your landlord is an NRI.
Since the HRA makes up a part of your total salary, it will reflect in your appointment letter and/or your Form 16. You can claim the exemptions in Part B of the same form. Don’t know what Form 16 is? Understand the ABC of Form 16.
Only salaried people living in rented accommodations can apply for HRA. Not if you live in a house owned by you.
If you are in a situation where you have your own home with an ongoing home loan but you still have to live in a rented accommodation for some reason, you can claim HRA and exemptions on your home loan interests at the same time.
Only if your monthly rent exceeds Rs 3,000.
No, you can only claim HRA for the house in the city of your workplace.
No, HRA is paid towards rent only since maintenance and electricity charges are not considered as the landlord’s earnings to be calculated for income tax.
Under Section 80GG of the IT Act, you can claim a tax deduction for the rent you pay even if you do not get HRA from your employer.
Let’s say you work with an MNC in Pune and get HRA as a part of your salary. But, instead of living in a rented place, you live with your parents. You can claim HRA by getting into a rental income with your parents. But, do remember your parent’s annual income. If their total income, including the rent you pay, is taxable, they may end up paying more taxes. But, if they are retired and their total income is exempted from tax, you and your family can end up saving some money! Don’t know whether your parents’ income is taxable or not? Read to find out through Income Tax slabs!
Good news for you! You claim HRA directly in your income tax returns. To do so, adjust your taxable income to include HRA and then calculate the tax payable on the lowered taxable income. You may also be able to claim for a refund if your tax has been deducted in excess. Read on to know more about how you can claim income tax refunds.
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