HRA Exemption and Calculation

What is House Rent Allowance?

The House Rent Allowance (HRA), which is a component of CTC, is a benefit that your employer provides to assist you in meeting the expenses of renting a place to live. ^[1]

Is HRA subject to taxes?

Since HRA is a component of your salary income, it is first regarded as taxable income. However, if you live in rental accommodation, you can claim a partial or whole tax exemption under Section 10(13A) of the Income Tax Act. The HRA exception is another name for this. This allowance is totally taxable if you don't rent a place to live.^[1]

If you opt for the new tax regime, you cannot claim tax exemption for HRA. If you choose the old one, you can claim for HRA exemption. ^[2]

Self-Employed Individuals' HRA

While self-employed individuals are qualified for Section 80GG tax deductions for rental housing, they are not eligible for HRA. ^[1]

HRA for Salaried Workers

Section 10(13A) of the Income Tax Act permits salaried employees to request exclusions from the House Rent Allowance (HRA). Following the company's HRA claim procedures is essential because this benefit accounts for a significant amount of an employee's compensation. Rule 2A of the Income Tax Rules specifies the maximum amount of exemption that can be granted. ^[1]

How Is HRA Exemption Calculated?

The HRA exemption can be claimed for the smallest of the following amounts:

Actual HRA received

People who live in metro areas (Delhi, Kolkata, Mumbai, or Chennai) earn 50% of their basic wage plus DA. ^[1]

40% of [base pay + DA] for non-metros residents

Actual amount of rent paid (-) Ten percent of [base pay + DA]

Can I Claim HRA and Deduction on Home Loan Interest?

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You are indeed qualified to seek the HRA exemption as well as the house loan interest deduction.

When you own a home but live in a rental, there are two options.

Both owned and rented dwellings are located in the same city. Here, you must provide reasonable justification for the deduction, such as the reason why you don't live in your home. One scenario could be that your home and the office are located far apart. Here, subject to the fulfillment of relevant requirements, you can claim both HRA and home loan advantages.

What Happens If I Don't Get an HRA?

If you pay rent but do not receive House Rent Allowance (HRA) from your employer or are self-employed, you can still claim a deduction under Section 80GG, but certain conditions must be met ^[1]:

• You must be either self-employed or salaried
• You should not have received HRA at any time during the year.
• Your rent expenses must be more than 10% of your total income.
• You, your spouse, your minor child, or the HUF you are part of should not own a residential property in the city where you live, work, or run a business.
• You can claim up to two properties as self-occupied under income tax rules.
• If you own more than two properties, any additional vacant property will be considered "deemed let out" (meaning notional rent will be taxable, even if the property is empty).
• If you own another residential property apart from the one for which you are claiming a deduction under Section 80GG, you cannot treat it as self-occupied — it will be considered as deemed let out for tax purposes.

How Can I Make a Section 80GG Deduction Claim?

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Individuals eligible for this deduction under the old tax regime can claim it while filing their ITR, provided they meet certain conditions. They must be paying rent for their current residence and should not own any property in the same city or location as their workplace. If they own a property within the city but choose to live in a rented home, they will not be eligible for benefits under Section 80GG.

Conclusion

House Rent Allowance (HRA) provides significant tax benefits for salaried individuals living in rented accommodations, while self-employed individuals can claim deductions under Section 80GG. The HRA exemption is calculated based on specific conditions, including salary, rent paid, and city of residence. Additionally, it is possible to claim both HRA and home loan interest deductions under certain circumstances.

FAQs

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1. When can I get my house rent allowance tax exemption?

   
   

   Only when the HRA component is included in your salary and you are paying rent for your residential housing may you seek a tax exemption on HRA.

   
   

2. How do I apply for an exception under the HRA?

   
   

   By providing your employer with proof of rent receipts, you can assert your HRA exemption. As an alternative, you can assert the HRA exemption on your own income tax return.

   
   

3. How can I submit HRA proof for Income Tax Return (ITR)?

   
   

   To claim a deduction for House Rent Allowance (HRA), employees must submit supporting documents such as rent receipts and rental agreements to their employer. If the annual rent exceeds ₹1 lakh, the landlord’s PAN must also be provided. Based on these documents, the employer will grant the HRA exemption and reflect it in Form 16.

   
   

4. What is an HRA certificate?

   
   

   An HRA certificate is an official document issued to government employees to claim a house rent allowance when they are unable to avail of government-provided accommodation, in accordance with the prescribed guidelines.

   
   

5. Can I claim both HRA and a deduction under Section 80GG?

   
   

   No, an individual cannot claim both HRA and a deduction under Section 80GG. The deduction under Section 80GG is available only to individuals who pay rent but do not receive a house rent allowance from their employer. Additionally, to qualify for this deduction, neither the individual nor their spouse or children should own a residential property in the location where they are employed, conduct business, or ordinarily reside.

   
   

6. What is the tax liability if my entire HRA is not tax-exempt?

   
   

   Any portion of HRA that is not eligible for exemption under the Income Tax Act is added to the taxable salary, and tax is deducted at source (TDS) by the employer based on the applicable income tax slab rates.

   
   

7. How is the HRA exemption calculated?

   
   

   The exempt portion of HRA is determined based on the lowest of the following three amounts:

   Actual HRA received from the employer

   50% of salary (basic salary + dearness allowance) for individuals residing in metro cities or 40% for non-metro cities

   Rent paid minus 10% of salary (basic salary + dearness allowance)

   To simplify this calculation, you may use an HRA calculator by entering your annual basic

   salary, dearness allowance (DA), and HRA amount as per your payslip. The calculator will instantly determine the exempt HRA amount.

   
   

8. To what extent is the HRA exemption available?

   
   

   Determine your HRA exemption with ease! To use HRA calculator, just enter your yearly basic salary, dearness allowance (DA), and HRA amount from your pay stub. Your exempt HRA amount will be computed and displayed promptly.