House Rent Allowance

What Are The Rules and Regulations For House Rent Allowance?

It is up to your employer to give you an HRA. Those who get free accommodations along with their jobs will not get HRA. Thus, they cannot claim any tax exemptions towards it.

• Individuals who pay rent can claim the HRA to lower their taxes - wholly or partly.
• If you do not live in a rented house or stay in your own house without paying rent, this allowance is fully taxable.
• HRA should be included in your CTC to claim it.
• You will have to inform the employer about rent paid by submitting receipts.
• Companies do not give HRA exemption in Form 16 if complete details are not available. In that case, you can claim the exemption directly in your IT return.
• You should provide the PAN card details of the landlord so that relevant tax deductions can be made from his/her income from property (rent received).
• PAN details of the landlord are required only if the rent paid is more than 1 Lakh Rupees per annum.
• In case you stay with your parents, you can pay rent to your parents and collect a receipt from them for HRA claim. But, you cannot claim a tax exemption by paying rent to your spouse.

How Is Tax Exemption On HRA Calculated?

Under HRA, you will get an exemption on the least of the following amounts:

• Actual HRA received by the employee in the year.
• Rent paid by the employee for his accommodation is over 10% of his salary. This is given by actual rent paid minus 10% of (basic salary + dearness allowance).
• For those living in metro cities: 50% of (Basic salary + Dearness allowance).
• For those living in non-metro cities: 40% of (Basic salary + Dearness allowance)

For example: let's take the following scenario:

• Mr Y’s monthly basic salary is Rs. 30,000
• Dearness Allowance is Rs. 7,000
• The monthly rent he pays is 15,000
• The amount he receives as HRA from his employer during the year is 1 Lakh.
• Mr Y lives in Chennai.

What Are The Documents Required To Claim House Rent Allowance?

The following documents are required:

• The receipts of rents paid by you. The details to be included in the receipt are:
• Date
• Name of the tenant
• Name of the Landlord
• Address of the rented residence
• Tenure of residence
• A revenue stamp
• Sign of the landlord on the revenue stamp

• The PAN card details of the landlord if the rent paid exceeds 1 Lakh Rs.
• The photocopy or xerox of the rent agreement when required.

How To Ensure That Your Claim Of HRA Tax Exemption Against Rent Does Not Get Rejected?

• Have a valid rental agreement. The rent agreement must include all necessary details, such as rental amount, duration of rent agreement, utility bills to be paid by you etc.
• You must ask for the rent receipt regardless of the payment channel used.
• If your rental payment is more than 1 Lakh, then you have to furnish the landlord’s PAN number.
• If your landlord does not have a valid PAN number, then ask him to give you a declaration to this effect.
• Pay the rent through valid banking channels rather than cash. This ensures an electronic trail of money for the transactions happening.
• Sometimes, the rent you have to pay may be higher than that mentioned on the rent receipt. In that case, the HRA Tax exemption will be done only on the amount written on the rent receipt and not the actual amount paid.
• You must physically reside in the house when you are claiming for the tax exemption on HRA.

Can I Claim Benefits On Both HRA And Home Loan?

• your house is under construction
• you are living in a rented house while letting out your own house.
• When you have your own house in another city.
• When you own the house and are unable to move in.

What Happens If I Don’t Get An HRA?

If your employer does not give you an HRA, you can still claim it under section 80GG. Conditions for claiming this deduction are:

• You should be self-employed or salaried.
• You should not have received HRA at any time during the year for which you are claiming 80GG.
• You, your spouse, your child who is a minor, or the HUF which you belong to do not own residential accommodation at the place where you currently reside, perform duties of office, or employment, or carry on business or profession.

If you own any other residential property apart from the one mentioned, you should not claim the benefit of that property as self-occupied. The other property would be deemed to be rented out to claim the 80GG deduction.

How To Claim Deduction Under Section 80GG?

The least amount among the following will be considered for deduction:

• Rs 5,000 per month
• 25% of adjusted total income
• The real rent should be less than 10% of adjusted total income

What Are The Conditions With Which HRA Can Be Claimed Under 80GG?

• The HRA exemption under 80GG is available only to those people who have not claimed the allowance under any other section of the Income Tax Act.
• HRA is available only to the HUF and the individuals.
• The HUF to which the employee belongs, the spouse, or the minor child should not enjoy the ownership of a residence where the employee is working.
• Both self-employed and salaried individuals can claim deductions on rent if they are not eligible for any tax exemptions under section 10-13A.
• The individuals who claim HRA under 80GG should not claim tax benefits related to a self-occupied property that they own elsewhere.
• The individual has to show that he or she fulfills all the conditions by submitting a self-declared form 10-BA.

How To Claim HRA When Living With Parents?

Mr X works in a company in Chennai. The company provides him with an HRA, but he lives with his parents in their house. So, how can he make use of HRA?

Mr X can pay rent to his parents and claim HRA. He has to make a rental agreement with his parents and give them money every month. This way, he will be helping his parents and also save on taxes. Also, MR X’s parents have to report the rent they receive from X as income in their income tax returns. If their other income is below the basic exemption limit or taxable at a lower slab, they can save tax on the family income.

Can Both The Spouses Claim HRA?

There is no restriction on both spouses claiming the HRA. If both the husband and wife are paying rent and are able to furnish the rent receipts, then both of them will get the benefit of HRA.

Conclusion

HRA is a great benefit offered by the employer. This helps you save on taxes mainly. You must however furnish the required documents correctly to make use of this allowance.

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