3 Things To Know About House Rent Allowance (HRA)

  Author: Abhijit Banerjee

Besides investments in various tax savings investments, there are expenses that also qualify for tax exemptions. One such expense is rent paid by an employee for his or her accommodation. In tax parlance, this is popularly known as House Rent Allowance (HRA). Here are three things that you must know about HRA.

Eligibility HRA is exempted from tax under Section 10(13A) of the Income-tax Act 1961. This is provided your salary structure includes this provision. It is the minimum of the three components.

First is actual HRA received.

Second, 50 per cent of salary for someone living in a metro city such as Delhi, Mumbai, Kolkata or Chennai. It is 40% of salary, if living in any other city.

Third, actual rent paid minus 10 per cent of your salary. Here, your salary includes your basic salary along with dearness allowance (if part of retirement benefit) and turnover based commission, if any.

How to claim HRA? To claim the tax benefit of HRA, you need to furnish to your employer the proof of rent paid by you. However, if the rent is less than Rs 3,000, no proof is required. But if the annual rent is more than Rs 1 lakh, beside rent receipts, it is mandatory for you to also report the Permanent Account Number (PAN) of the landlord to your employer. In absence of a PAN, a declaration to this effect from the landlord should be filed by you, with details of property owner, address and rent received.

What if HRA is not part of salary? An individual who does not receive HRA as part of salary, or is a self employed or professional staying in a rented apartment, can claim the deduction for rent under Section 80GG of the Act. Of course, this is provided the specified conditions are fulfilled. At present, the maximum amount of rent that can be claimed as tax deduction is capped at Rs 5,000 per month i.e. Rs 60,000 per annum. However, the tax deduction cannot be more than actual rent paid minus 10 per cent of accesses total income or 25% of total income.