House Rent Allowance (HRA)

What is House Rent Allowance or HRA?

The HRA full form is House Rent Allowance. It is included in your annual salary package and helps you to reduce your tax liability while managing your housing costs.

HRA is not fully taxable. A portion of it can be exempt from taxes under Section 10(13A) of the Income Tax Act. The amount of tax you owe on HRA depends on several factors, including your basic salary, rent paid, and whether you live in a metro or non-metro city.

An HRA calculator can be helpful to calculate your tax savings easily.

IMPORTANT NOTES:

• You can claim the HRA tax exemption only with the Old Tax Regime. This tax benefit is not available with the New Tax Regime.

• An Old vs New Tax Regime Calculator can help you decide which regime provides better tax benefits, including HRA deductions.

• The HRA is not a right of the employees, and it is up to the employer to grant it or refuse it.

• Those who get free accommodations along with the job do not get any House Rent Allowance and hence cannot claim any HRA exemptions of tax towards it. 

Eligibility Criteria to Claim HRA Tax Exemption

Tax deductions on HRA under Section 10 (13A) of the Income Tax Act can be claimed by fulfilling the following criteria:

• The individual must be a salaried employee.

• The current residence needs to be rented.

• A House rent receipt or any other house document proof is required to claim the HRA exemption.

NOTE: HRA calculation is made for a rented house and not the individual's personal residence.

HRA for Self- Employed Individuals

Self-Employed individuals cannot claim HRA exemption under Section 10(13A). They claim tax deductions for payable house rent under Section 80GG. This section can also be used to claim the HRA tax exemptions for salaried employees when they do not receive any HRA.

HRA for Salaried Individuals

The salaried individuals are eligible for HRA exemptions under Section 10 (13A) of the Income Tax Act. To claim HRA exemption, employees must submit rent receipts or rental agreements.

NOTE: If annual rent exceeds ₹1,00,000, the landlord’s PAN is mandatory to claim HRA tax exemption. If the landlord doesn't have a PAN, they must provide a self-declaration, as per Circular No. 8/2013, dated 10 October 2013.

HRA Tax Exemption for the Salaried Individuals

The HRA calculation is done on the lowest among the following:

• Actual HRA received.

• 50% of the basic salary (for metro cities like Delhi, Mumbai, Calcutta, and Chennai) or 40% (for non-metro cities).

• Rent paid Minus (-) 10% of basic salary.

An Illustration

For instance, if Mr Sohan earns an annual salary of ₹5 lakhs. This salary includes basic salary of ₹4 lakhs, dearness allowance, conveyance allowance, and an HRA of ₹1 lakh and pays the annual rent of ₹1.5 lakhs, he will be provided with a tax exemption which will be the least of the following:

Thus, Mr Sohan's HRA exemption will be ₹1 lakh.

Rules for Rent Paid to NRI Landlords

When paying rent to an NRI landlord, tenants are required to deduct TDS at 30% before making the payment. The deducted amount must be deposited with the government, and relevant forms like Form 15CA and 15CB may need to be filed.

Tax Benefits on Both Home Loan Interest and Rented House

It is possible to claim tax benefits on both a home loan and a House Rent Allowance (HRA) if certain conditions are met.

• HRA Exemption: If you stay in a rented house, you can claim HRA under Section 10(13A), subject to conditions.

• Home Loan Benefits: Even if your house is not self-occupied (e.g., it is under construction, rented out, or located in another city), you can claim:

  • Interest on loan: Up to ₹2 lakh per year under Section 24(b).

  • Principal repayment: Under Section 80C, up to ₹1.5 lakh annually.

Note: This dual benefit applies when the house purchased on loan is not your primary residence and you live elsewhere in rented accommodation for work or other reasons. Proper documentation is required to claim these benefits.

Documents Required to Claim the House Rent Allowance Related Tax Exemptions

The employee must provide the following documents if they wish to claim the tax exemptions related to the House Rent Allowances.

• Rent Receipts: Mandatory if rent exceeds ₹1 lakh annually.

• Rent Agreement: Helps validate rental payments and tenancy.

• Landlord’s PAN: Required if annual rent is more than ₹1 lakh.

• Landlord’s Details: Name and address of the landlord.

• Proof of Payment (if needed): Bank statements showing rent transfers may be requested.

Tax Exemptions on the Rent Paid under Section 80 GG

• Eligibility: Available to Individuals and HUFs (Hindu Undivided Families).

• Self-Employed & Salaried Individuals: Can claim deductions if not receiving HRA exemptions under Section 10(13A).

1. Other Conditions Related to the Section 80 GG

   • Ownership Restriction: Neither the employee/self-employed person, their HUF, spouse, nor minor child should own residential property where they work.

   • Section 80GG Condition: You cannot claim tax benefits for any self-occupied property. You must provide a self-declaration using Form 10-BA, confirming compliance with all required conditions.

2. Claim Deduction Limit under Section 80GG

   The least of the following can be claimed for tax deduction under Section 80GG:

   • ₹5,000 per month.

   • 25% of total annual income (excluding capital gains).

   • Rent paid minus 10% of total income.

How to Claim HRA Exemption When Living with Parents?

• Eligibility: Salaried individuals can claim HRA even if they are staying with their parents by paying rent to them.

• Conditions: A formal rental agreement with parents is recommended. Regular rent payments should be made, preferably via bank transfers.

• Documentation Required: Rent Receipts signed by parents. However, if rent exceeds ₹1 lakh annually, the landlord’s PAN (parent’s PAN) must be provided.

• Tax Implications for Parents: The rent received will be treated as income for parents and taxed accordingly.

Date for Filing the ITR and Claiming the HRA Tax Exemption

• ITR Filing Deadline: Typically July 31 of the assessment year (unless extended).

• Late Filing: ITR can be filed until December 31, but with penalties.

• HRA Exemption Claim: Must be included in the ITR filing for the relevant financial year.

• Revised ITR: Corrections can be made by filing a revised return before December 31 of the same assessment year.

• Supporting Documents: Keep rent receipts and other proofs handy in case of inquiries or audits.

HRA Exemption Calculator

The free HRA calculator online is a tool that will help you to calculate your tax exemptions on the House Rent Allowance for filing your ITR.

1. Factors for HRA Calculation:

   • Basic Salary

   • Dearness Allowance (DA)

   • HRA Received

   • Rent Paid

   • Location is Metro City/Non-Metro City

2. Formula for HRA Exemption: 

   The least value from the following three is the amount of HRA exemption:

   • Actual HRA received

   • 50% of basic salary (for metro cities) or 40% (for non-metro cities)

   • Rent paid – 10% of basic salary