One of the most important components of a person’s salary package is the House Rent Allowance (HRA). Paying for a percentage of an employee’s housing rental costs is a substantial benefit offered by businesses.
What is House Rent Allowance?
The House Rent Allowance (HRA), which is an element of CTC, is a benefit that your employer provides to assist you in meeting the expenses of renting a place to live.
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Is HRA Taxable?
Since HRA is part of your salary income, it is first regarded as taxable income. However, Section 10(13A) of the Income Tax Act allows you to claim a partial or whole tax exemption if you live in rented housing. This is sometimes referred to as the HRA exception. This allowance is totally taxable if you don’t rent a place to live.
Please be aware that if you select the new tax system, you will not be eligible for the house rent allowance tax exemption.
HRA for Self-Employed Individuals
Self-employed people are not eligible for HRA, although they are eligible for Section 80GG tax deductions for rental housing.
HRA for Salaried Individuals
Salary workers are eligible to seek exclusions from the House Rent Allowance (HRA) under Section 10(13A) of the Income Tax Act. Since this benefit makes up a considerable portion of a person’s pay, it’s critical to abide by the company’s HRA claim procedures. The amount of allowable exemption is specified in Rule 2A of the Income Tax Rules.
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How to Claim HRA Exemption?
You must fulfil the following requirements in order to be eligible for HRA exemption:
- Rent a place to live.
- As part of your CTC, get HRA.
- Provide legitimate rent receipts as evidence of your rent payments.
- A number of variables, including the employee’s pay, rent, HRA, and city of residence, will affect the HRA exemption computation.
How to Calculate HRA Exemption?
The HRA exemption can be claimed for a maximum of the following amounts:
- Received actual HRA
- For those residing in major cities (Delhi, Kolkata, Mumbai, or Chennai), 50% of [base salary + DA]
- 40% of [base pay + DA] for non-metros residents
- Ten percent of [base pay + DA] is the actual rent paid.
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Can I Claim HRA and Deduction on Home Loan Interest?
Yes, you are eligible to claim both the house loan interest deduction and the HRA exemption.
When you own a home but live in a rental, there are two possible scenarios.
Both the owned and rented homes are situated in the same city.
Here, you must provide reasonable justification for the deduction, such as the reason you don’t own your home. One scenario could be that the office is located far from your home. In this manner, subject to the completion of relevant requirements, you can claim both HRA and home loan advantages.
The homes that are owned and rented are in separate cities.
If you move to a different place for work-related reasons, you can claim tax benefits.
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When Do You Need a Landlord’s PAN?
Remember to give the landlord’s PAN if you have a rental property and are paying more than Rs. 1 lakh a year. Otherwise, you might not be eligible for the HRA exemption.
According to circular No. 8/2013, published October 10, 2013, landlords who do not have a PAN are required to sign a self-declaration confirming that they do not.
When paying rent to non-resident landlords, tenants must remember to deduct 30% TDS before making the monthly payment.
What If I Don’t Receive an HRA?
You can still claim the deduction under Section 80GG if you pay rent for living in a residential flat but do not receive an HRA from your employer. To be eligible for this deduction, the following requirements must be met:
- You are self-employed or salaried
- Throughout the year for which you are claiming 80GG, you have never received HRA.
- The amount you spend on housing should be more than 10% of your overall income.
- You, your spouse, your minor child, or the HUF you are a part of do not currently own any residential property where you live, carry out your official or job-related responsibilities, or engage in business or profession.
You should not claim the benefit of your residential property as self-occupied if you own any other residential property other the one listed above. To be eligible for the 80GG deduction, the other property would have to be considered rented.
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How to Claim Deduction Under Section 80GG?
Tax exemptions will be granted to the least of the following:
- Rs. 5,000 a month
- 25% of total adjusted income
- Less than 10% of adjusted total income should be the actual rent.
- Gross total income after all deductions, with the exception of the deduction under section 80GG, is determined as adjusted total income.
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