HRA : House Rent Allowance

House Rent Allowance (HRA) is a component of your salary provided by your employer to help cover your rental expenses. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be exempted from income tax, provided certain conditions are met.

What is House Rent Allowance (HRA)?

HRA is an allowance paid by employers to employees to assist in covering the cost of renting a home. While it’s a part of your salary and taxable income, you can claim tax exemption on a portion of it if you live in rented accommodation and meet specific criteria.

Who Can Claim HRA Exemption?

To be eligible for HRA exemption:

• You must be a salaried individual receiving HRA as part of your salary.
• You should live in rented accommodation and pay rent.
• The rent paid should exceed 10% of your basic salary.
• You must not own the residence you are living in.
• You should not be paying rent to your spouse.

Note: HRA exemption is available only under the old tax regime.

How is HRA Exemption Calculated?

The exempted amount of HRA is the least of the following three:

1. Actual HRA received from your employer.
2. 50% of your salary (basic + dearness allowance) if you reside in a metro city (Delhi, Mumbai, Kolkata, Chennai); 40% if you live in a non-metro city.
3. Actual rent paid minus 10% of your salary (basic + dearness allowance).

Example Calculation

Let’s consider an example:

• Basic Salary: ₹30,000 per month
• HRA Received: ₹15,000 per month
• Rent Paid: ₹12,000 per month
• City: Delhi (Metro)

Calculations:

1. Actual HRA received annually: ₹15,000 × 12 = ₹1,80,000
2. 50% of annual salary: 50% of (₹30,000 × 12) = ₹1,80,000
3. Rent paid minus 10% of salary: (₹12,000 × 12) – 10% of (₹30,000 × 12) = ₹1,44,000 – ₹36,000 = ₹1,08,000

Exempted HRA: The least of the above is ₹1,08,000.

Documents Required to Claim HRA

To claim HRA exemption, ensure you have:

• Rent receipts with landlord’s details.
• Rental agreement (if available).
• PAN of the landlord if annual rent exceeds ₹1 lakh.
• Proof of rent payment, such as bank statements or payment receipts.

Special Cases

• Living with Parents: You can claim HRA by paying rent to your parents, provided there’s a rental agreement, and the rent is transferred to their account. Your parents must report this income in their tax returns.
• Owning a House in Another City: If you own a house in one city but live in rented accommodation in another due to work, you can claim HRA for the rented house.

Important Points

• HRA exemption is not available under the new tax regime.
• Self-employed individuals cannot claim HRA but may claim deductions under Section 80GG.
• Ensure all documents are accurate and submitted timely to avoid issues during tax assessments.

For a quick calculation of your HRA exemption, you can use online HRA calculators provided by various financial websites.