Guide To Claim HRA Exemption under Different Rental Conditions

Have you received a house rent allowance from your employer? It is a portion of your pay granted by your company to cover the costs of rental housing. If only you live in a leased residence, you may seek HRA deduction of tax. HRA exemption is addressed under Section 10(13A) of the IT Act, as well as Rule 2A.

In this article, we are going to discuss the definition of HRA, and the Different Rental Conditions which will help you in claiming tax benefits as HRA deduction.

What is House Rent Allowance?

HRA is a portion of a worker’s compensation that is granted to support the expense of housing up to a specified percentage. Because the worker will be spending this money on housing, the authorities do not want the worker to pay any tax on it, therefore the individual can seek HRA deduction of tax.

Different Rental Conditions

There are four major rental conditions under which an individual can seek HRA deduction of tax. They are mentioned below:

1. Lives in a Rented Property and Receives HRA from his/her company

A company provides a House Rent Allowance to their workers to help them with renting expenditures. It is intended to provide employees with tax advantages for covering lodging expenditures. Section 10(13A) of the IT Act governs the House Rent Allowance. Section 10 of the House Rent Allowance exempts a portion of the HRA amount from taxation.

Individuals’ tax liability is calculated by subtracting their House Rent Allowance exemption from their overall income. If the worker is not residing in rented housing, the amount is completely taxed.

Exemption Amount

The deduction allowed will be the lesser of these amounts:

  • Actual HRA amount received in salary
  • (Basic Pay + DA) x 50% if you are living in the metro cities, if not, (Basic Pay + DA) x 40%
  • Annual Rent – (Basic Pay + DA) x 10%

Required Paperwork

  • Rent invoices for the previous months
  • Rent contract with the house’s owner
  • If the annual rent exceeds 1,000,000 INR, the employee must get a photocopy of the homeowner’s PAN and provide it to his or her company.

2. Lives in a Rented Property but do not receive HRA from his/her company

Some workers do not get HRA, and self-employed persons may not be eligible to seek an HRA deduction of tax. Deductions are allowed under such circumstances under Section 80(GG)

Exemption Amount

  • Annual Rent – (Basic Pay + DA) x 10%
  • (Basic Pay + DA) x 25%
  • 5,000 INR per month

Eligibility Criteria

  • The worker, his/her spouse, minor children or, his/her Undivided Hindu Family (if he/she is a part of one) must not own any residential property where the worker resides in rented accommodation.
  • The worker or his/her Undivided Hindu Family (if he/she is a part of one) must not own the property the worker is living in.
  • The worker must not have received House Rent Allowance during any part of the financial year when he/she is filing for deduction under Section 80GG.

3. Lives in a Rented Property owned by Relatives

The individual seeking the tax break must not be the owner of the property being leased out. If a person pays rent to his or her relatives, he or she may seek a tax deduction for House Rent Allowance. However, if the assessee pays rent to his or her spouse, he or she cannot claim an HRA deduction. Because of the characteristics of a married connection, it is assumed that the person will lease out the house with his or her spouse.

4. Lives in a Rented Property and owns a Residential Property

An individual may apply for HRA exemption if he or she owns a residential home that is not in the same town/city as the leased housing. If a person lives in leased housing, he or she can claim tax advantages for interest charged on the house loan and principal sum paid for house loan as well as House Rent Allowance.

Conclusion

Many companies tend to offer certain types of reimbursements to their employees. This is basically done to cover the cost of certain procedures and expenses which may not have direct tax benefits but are still essential for the smooth functioning of an employee. HRA is also one such type of allowance provided by the employer.

The amount received by an employee as House Rent Allowance is also eligible for tax exemption given that certain conditions are fulfilled.  But it is important to be careful and first understand if an individual is eligible to avail it. Certain things need to be taken care of while they are submitting the HRA claim form. This article highlights four major rental conditions under which an individual can seek HRA deduction of tax. This is focused to prevent any complications in the future.

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