House Rent Allowance: HRA Exemption & Taxation
As soon as the taxation season starts, the majority of salaried employees will start collating the proofs submitted for income declaration. Individuals will rush to their screens looking for the right answer to this question, “how to save tax on salary”. Well, there are several provisions available to save on your income tax on salary. Here in this blog, we will be discussing one such provision called House Rent Allowance (HRA) and help you understand what it is, how to claim tax benefits, and more.
What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is an important part of every employee’s salary. If you have seen your salary slip, then you must have witnessed a separate HRA amount in the breakup. Employers pay this amount to employees, allowing them to manage their rent expenditures.
At the time of filing for an income tax return, you have the flexibility to claim HRA Exemption under Section 10 (13A) of the Income Tax Act, 1961. But before that, you must be aware of how much tax benefit you can avail yourself of from your actual rent, what documents to attach, and how to calculate it.
What is HRA Exemption?
It is important to know that you can claim HRA Exemption as a tax benefit under Section 10 (13A), Rule 2A of the Income Tax Act. It simply implies, if you are looking to save your tax deducted from your salary, then HRA Exemption should be your first provision to utilize. The exemption for HRA Taxation is applicable if you meet the following criteria:
- You are a salaried individual.
- Your salary breakup must have an HRA component mentioned in the salary slip.
- You must be living in a rented house.
- You must have a rental agreement between you and the landlord.
Calculation of HRA Exemption
Here’s the list of criteria under which HRA is exempt from your salary.
- Your employer pays the HRA amount.
- Employees living in metro cities can claim up to 50% of their basic salary. And individuals living in non-metro cities can claim up to 40% of their basic salary.
- The amount of HRA exemption can exceed 10% of the basic salary.
Documents Required for HRA Exemption
When you think of claiming the HRA taxation benefit, you must be ready with the following set of documents:
- 1 year of rent receipts
- House rent agreement
- Form 12BB
- Submit the copies of your salary slip with HRA mentioned as a component
- PAN card of the landlord
- Rental proof of bank transfer
Important Things to Keep in Mind
When filing for HRA Exemption, it is important to keep the following points in mind:
- You must select the old tax regime to claim HRA Exemption.
- You cannot claim HRA benefits in case you are paying rent to your husband/wife.
- It is an important matter to submit a PAN card of your landlord if the annual rent exceeds INR 1 Lakh.
Get Started with TaxDunia
House Rent Allowance (HRA) is a beneficial component for working individuals to save their income tax to an optimum extent. Claiming HRA Exemption is a simple process based on the above information that can help you save hard-earned money. You can even take the professional advice of a taxation professional to understand HRA and other available components.
FAQs
- Who can avail tax benefit of HRA?
If you’re a salaried person, then you can get its benefit. It is because this component is included in the salary slip and paid to the employee every month.
- What should be the minimum HRA amount required for tax benefit?
The minimum HRA amount should exceed 10% of your basic salary.
- Can I claim the HRA benefit under the New Tax Regime?
No, you cannot. HRA Exemption is only available with the old tax regime.
