Looking To Save Tax On House Rent Allowance? Here's All You Need To Know

If you have recently shifted to another city due to your new job, it would be tough for you to digest the fact that a big part of your salary is going to be consumed by your house rent. However, you can easily lessen this burden by using the benefit of HRA - a major component of your salary. HRA is an important part of any individual’s salary structure and the good thing is that it’s not entirely taxable unlike the basic salary.

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Under a specified set of rules and regulations, a part of House Rent Allowance is exempted under section 10 (13A) of the IT (income Tax) Act. You need to understand that HRA is meant for those salaried or self-employed individuals who live in a house which is not owned by her/him.

Self-employed individuals can also claim HRA benefits under the section 80GG. Even salaried employees, who don’t receive any HRA, can claim the benefits of the said component under the section 80 GG. 

How Much HRA can be Eexempted? 

The deduction for HRA exemption under the IT Act Section 10-13A includes:

  • The actual amount of HRA received by the employee
  • 40% of the salary if residing in non-metro cities and 50% if residing in metro cities like Chennai, Kolkata, New Delhi & Mumbai.
  • The actual amount of rent that is paid by the employee, after subtracting 10% of her/his salary.
  • The exemption under HRA is only exempted when the individual is paying more than 1 lakh rupees annually as her/his rent. 

A person can avail the benefits of HRA on his home loan as well as rented residence.

What if an individual’s home is rented to someone else and s/he has to live in a rented accommodation? In such scenarios, the employee will have to denote her/his income that s/he has got from the property (the home loan property) and also pay the taxes due for it.

However, if both of the properties are in the same city- to claim the benefits on both of the properties- the employee will have to show that her/his job location is far away from her/his owned property and hence s/he can’t use it as his residence. Then only, he will be able to claim her/his tax exemption.

As a tax saver, it’s important for you to know the correct way of claiming HRA rebate as submitting fake documents can put you more in trouble than making it easier for you. As per latest judicial announcements, your tax assessing officer has full right to check the genuineness of the documents submitted by you for the HRA claiming.

The enlisted points below, will not only help you appreciate the benefits of legitimate tax exemption from House Rent Allowance but will also save you from future notices or penalty from IT (income Tax) department (which you can get for submitting fake documents):

  • Employers offer HRA as a mandatory component of your salary to help you manage the costs of your rented accommodation. In addition to that, government gives an additional bonus by offering a tax exemption of approximately 60 percent on your HRA. Hence, if you are claiming HRA rebate for an abode, make sure that you use that particular abode as your residence. In other scenarios, where you want to claim tax benefit on your own house, seek help from an expert to plan your taxes correctly.
  • Always be a step ahead when it comes to claiming the HRA tax rebate. Get the rent agreement prepared in advance and ensure that all the terms & conditions of your landlord are stated very clearly on the agreement to avoid any confusion later on. 
  • Going cashless while paying your rent will help you in the long run. Always rely on the methods, where you can get receipts for your payment as you will need to show the copies of those receipts while documentation. In case, your landlord asks for the rent to be paid in cash, put a Re1 stamp on the receipt as you’ll need to show this while claiming HRA. 
  • You’ll be glad to know that even if you share a residence with your parents and want to claim the benefits of House Rent Allowance, you can easily do so.  However, there is a certain procedure to follow. You’ll have to get a rent agreement registered where you can show your parents as the landlords and transfer money in their bank account. Moreover, your parents will also need to show this rent as their income in the ITR form submitted by them. If your parents’ total income is within the tax exemption limit as prescribed by IT department, your family can easily save some money with the help of HRA feature. 

Conclusion

Now when you know how to save taxes on House Rent Allowance, it is time to put the learning into practice and start saving your hard-earned money from getting depleted at the time of taxation.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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