House Rent Allowance (HRA)

House Rent Allowance is a component of the salary provided by the employer to his/her employee. If you receive HRA as part of your salary and you live in a rented accommodation, then you can claim full or partial HRA exemption u/s 10. However, HRA is fully taxable if you don’t live in a rented accommodation. How to calculate HRA? Your HRA depends upon the following 4 factors. They are:
  • Salary
  • HRA component
  • Rent Paid
  • Location of your rented house
Tax exemption on HRA is least of the following: 1) Actual HRA received 2) Actual rent paid reduced by 10% of salary 3) 50% of basic salary if the taxpayer is living in a metro city 4) 40% of basic salary if the taxpayer is living in a non-metro city Since the least of the above is exempt from tax, you can ask your employer to restructure your salary to get maximum tax benefit.
                                                                                                  Pay rent and save taxes
What if my employer does not provide me with the HRA? If you are making payments towards rent for any furnished or unfurnished residential accommodation occupied by you, but do not receive HRA from your employer, you can still claim the deduction and that would be under Section 80GG. Conditions that must be fulfilled to claim this deduction:
  1. You should be self-employed or salaried
  2. You have not received HRA at any time during the year for which you are claiming 80GG
  3. You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.
In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. That other property would be deemed to be let out in order to claim the deduction under section 80GG. Refer our Articles on Income from house property where we have discussed this in detail. As per section 80GG of the Act, the least of the following will be considered as tax-free:
  1. Rs 5,000 per month;
  2. 25% of adjusted total income*;
  3. Actual Rent less 10% of adjusted total Income*
*Adjusted Total Income means Total Income Less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG). How to Claim HRA When Living With Parents? Where you are staying in your parents’ house and your parents are owner of the same, you can still claim the HRA. You can pay the rent to your parents and claim the allowance provided. You will have to enter into a rent agreement with your parents, provide their PAN card to your employer, also generate rent receipts. In this case, please note that the rent amount that you showing as payment to your parents will be taxed as rental income in their hands. Is my landlord's PAN mandatory to claim HRA? Yes, it is where your annual rent crosses 1 lakh INR. If your landlord does not have a PAN, then you (as the employee) have to obtain the declaration to this effect from the landlord along with  the name and address of the landlord. A Format of Deceleration May be as follows :- Date To Name & Address DECLARATION I ____________(Full name and address of the declarant) aged ____ do hereby declare that I have leased the Flat No._______________________________ From 1st April’2018 to 31st March’2019 to ___________( Name of lessor) at a monthly rent of  Rs. _______/- ( __________________ only). Further I do hereby declare that my total income during the financial year 2018-2019 did not exceed the statutory  limit prescribed under Income tax Act,1962 and have not assessed to tax and does not have a PAN card . Verification I,_________________ do hereby declare that what is stated above is true to the best of my knowledge and belief. Verified today, the _____________ day of _________________
Date : ________________Place : ________________ (Name of the declarant)
HRA is one of the most common component of a salary structure and hence, you must claim the same where you are staying on rent. If you are not staying on rent and living with your parents, it is important you analyse the overall family's taxability before declaring that you are paying rent to your parents.
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