House Rent Allowance or HRA is a component of the salary portion, which is provided by the employer to his/her employee. Employees or Salaried Individuals who live in a rented house property can claim full or partial HRA exemption under section 10(13A). However, HRA is fully taxable in the hands of employees if they don't live in a rented accommodation.
Your HRA Calculation depends upon:
- HRA Received
- Rent paid
- Location of your rented residence
HRA Exemption Rules
HRA Exemption will be least of the following:
- Actual HRA Received
- Actual Rent paid reduced by 10% of Salary
- 50% of basic salary in case where taxpayer is residing in a metro city.
- 40% of basic salary in case where taxpayer is residing in a non-metro city.
The least of the above will be exempt from tax.
Need of PAN Number of Landlord
Where you are residing in a rental accommodation and are making a rental payment in excess of Rs 1,00,000 annually – Then you must obtain the landlord’s PAN or you may lose out on the HRA exemption.
Any Rent paid to NRI landlords, TDS shall be deducted at 30% before making payment towards rent.
If Employer Doesn’t provide HRA as a Salary Component
If you are making rental payments for any accommodation occupied by you for your own residence, but do not receive HRA from your employer, you can claim deduction under section 80GG.
Conditions to claim deduction u/s 80GG –
- You are self-employed or salaried;
- You have not received HRA from your employer at any time during the year for which you are claiming 80GG;
- You or your spouse or your minor child or HUF of which you are a member do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.
Deduction under Section 80GG if HRA not received
The least of the will be considered as the deduction under this section:
- Rs 5,000 per month;
- 25% of adjusted total income*;
- Actual Rent less 10% of adjusted total Income*
*Adjusted Total Income is calculated as Total Income minus long-term capital gain, short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG).
Can I Claim HRA and Deduction on Home Loan Interest as well?
Yes you can claim both tax exemptions together. If you are a home owner paying home loan interest but living in a rented accommodation then you can get tax benefits for both cases.
How can I Claim HRA When Living With Parents?
Illustration: Dhruv works in an MNC in Hyderabad. He receives HRA/house rent allowance as a part of his salary. But he doesn’t live in a rented accommodation; he lives with his parents instead. How Druv can take the benefit of HRA allowance provided by his employer?
Dhruv can pay rent to his parents (PAN Number is required in case paying rent of more than Rs.1,00,000 p.a) and can claim the allowance provided they own the place they currently live in. He is required to enter into a rental agreement with his parents and transfer rental money in to their bank account every month.
This way Dhruv can make a good gesture and give back to his parents, and Secondly, He can save some taxes.
But remember: Dhruv’s parents will have to show the rent as a income in their Income Tax returns. This is how you can save taxes when living with Parents.