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Check Out Your Options On Saving Taxes On House Rent Allowances

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What is House Rent Allowance Exemption ?

House Rent Allowance is a right of every individual who earns a salary and lives in a rented house. It allows them to be partially or totally exempted from paying taxes, under Income Tax Act Section 10 (13A). HRA is a part of salary structure in all offices, but unlike salary, HRA is not taxable. The amount of tax which is deductible is subtracted from the total income before calculating the taxable income. If an employee owns the house he or she resides in, then HRA is not available for him or her.

People who are self-employed can also claim for HRA tax exemptions. They can claim it under Section 80 GG upto a specified limit.

HRA is applicable for both, private and public sector employees.

How is the tax exemption calculated?

  1. Actual HRA received.
  2. 50% of the basic salary + Dearness Allowance (DA), for the people living in metros and 40% for the people living anywhere else.
  3. Rent paid annually over 10% of annual salary.

The Commission received on the basis of sales turnover is also added to the basic salary, if applicable, during the calculation of exemption of taxes.

Documents required to claim exemption of  HRA.

 

  1. Rent receipts or rent agreement with the house The same receipt can be used for three months.
  2. Pan card of the landlord, if the rent exceeds INR 1 lakh annually or INR 8,000 per month.
  3. Address detail of rented accommodation.
  4. Duration of stay.
  5. Revenue stamp with the signature of the landlord.

 

Sometimes, employees own a house, but that house is rented to someone else, so he or she stays in a different house in a different city, then he or she can avail to both, home loan exemptions and HRA.

If you live in your parents’ or relative’s house and pay rent, then also you can claim for tax exemptions under HRA. For that, you need to provide proof that your parents or relatives do own that house and they do include their rental income with their total income while filing tax returns.

If you pay rent, but HRA is not under your salary structure,

Or

You are self employed person

then you can turn to Section 80GG for tax Deduction

Under Section 80 GG, tax deduction would be:

  1. Rent paid more than 10% of the adjusted total income.
  2. 25% of the adjusted total income.
  3. INR 2000 per month (Proposed Rs. 5000/- per month from FY 2016-17)

What is Adjusted Total income ?

The Adjusted Total Income means :-

Gross Total Income

Less :

Long Term Capital Gain

Short term capital gain of 10% category

Deduction u/s 80C to 80U Except section 80GG

Conditions for claiming tax exemption under HRA.

  1. The employee needs to actually pay rent to the landlord. The tax won’t be exempted for times when rent is not being paid.
  2. When your job location shifts from metros to non metros or vice versa or there is a change in salary, then HRA are calculated on a monthly basis. Hence, tax deductions vary for the period of change.
  3. You can either claim tax exemption under section 10 (13A) or under Section 80 GG, never under both sections.

This was all you needed to know about HRA tax savings. Until and unless you live in a house owned by you, or the rent you pay to your landlord is less than 10% of your salary, it is your right to avail the HRA exemption from your salary.

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