Tax Guidelines
HRA: House Rent Allowance Summary and its Advantages
HRA or House Rent Allowance is a salary component of the pay structure which is paid by employers to employees. It is an important element in an employee’s salary as HRA provides tax benefits for payment made on accommodation. The settlement about the amount of HRA to be paid to an employee is determined by various criteria like the salary and the city where the employee is stationed. The provision of Section 10(13A) of the IT Act regulates the House Rent Allowance in India.
Get the detail information of HRA Calculation in India Get Details
Salaried individuals are given the privilege of House Rent Allowance benefits while self-employed individuals are excluded from claiming HRA benefits. To be approved for HRA benefits the employee is required to be occupying a rented accommodation with the monthly rents payable to the landlord. An employee can also claim HRA benefits if he / she pays rents to his parents or relative by submitting rent receipts as prove of rent payment.
Producing two receipts of the rent payments should suffix as the proof for availing HRA benefits. One of the two receipts should be rent paid at the start of the financial year and the other must be, one paid towards the end of the financial year.
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How does an employer decide on how much HRA to pay?
The amount for House Rent Allowance to be paid to an employee is generally based on the Basic Salary. Other factors that act as the deciding ingredient for HRA amount is the city where the employee is stationed; in the case, for employees who reside in metro cities, an entitlement of 50% of the Basic Salary is the HRA percentage for other cities the percentage is 40% of Basic Salary.
To calculate the House Rent Allowance amount, components like the sum of Basic Salary, Dearness Allowances and any other commissions play vital roles.
The HRA provided to employee will be the lowest of the following three allocations:
- The actual amount received as HRA from the employer.
- Actual rent paid reduced by 10% of Basic Salary.
- 50% of Basic Salary for employees stationed at metro city and 40% for non-metro city residents.
Proofs Required for availing HRA Exemption
There will be no documentary proof required if your HRA claim is up to Rupees 3000 per month. If the claim amount exceeds the limit of Rupees 3000 per month then you will be mandated to produce certain documents as proof of accommodation payment.
- The Rent Receipts: A fully filled Rent Receipt with the complete details of the residency address, landlord’s name, amount of rent paid, signature of the landlord verifying the payment acceptance etc. along with a 1 Rupee revenue stamp.
- Rental agreement in some cases: If the monthly rental amount exceeds Rupees 15000 per month (Rupees 1,80,000 per annum) then PAN Details of the landlord should be produced mandatorily for claiming the HRA exemption.
What are the factors inclusive in HRA Exemption Rules?
- If an employee does not pay any rent then he / she cannot request for HRA exemption scheme.
- The HRA exemption is calculated monthly, in order to keep the pay structure update in accordance with the employee’s salary appraisal, change in rent paid or transfer to another city.
- If an employee resides with his / her family or relatives and pays a rental amount monthly then, the individual must make the transfer of rent payment through bank transfer so that he / she can produce proof to make the claim.
- The HRA policy states that an employee will have the benefit of claiming HRA amount even if he / she is a property owner but resides in a different city where he has occupied a rented accommodation. No provisions can stop an employee from owning real estate property.
- No exemption will be applicable under Section 80GG if the HRA deduction is allowed under this section.
- One can claim for exemptions under section 10(13A), section 80C (repayment towards housing loan) and section 24b (interest paid to banks on the home loan) during the same time.
To avoid rejection on House Rent Allowance Exemption Get Details
Individuals who pay rent for accommodation but are not allowed to claim HRA
There are some cases where employees do not have an HRA component in their salary structure but still has the liability of paying monthly accommodation rent, under such circumstance Section 80 (GG) of the Income-tax Act comes into effect. When an individual is paying rent for either furnished or unfurnished accommodation, he / she is applicable to claim the rent payment deduction under Section 80 (GG) of the Income Tax Act.
Tips to save on your Tax
One can also pay rent to parents or grandparents to remove taxable income and save up on Income Tax. Although parents or grandparents are the landlords of the house but the property should be under the same name as shown in the rent receipt.
The accommodation occupied by the claimant (i.e. the family home), cannot be signed under the person making claim for the Tax exemption. However, paying rent to one’s spouse cannot be verified as valid to avail HRA benefits, as it is stated that after marriage the couple is supposed to automatically share an accommodation together.
HRA benefits on Home Loans
If an individual pay for a home loan and he / she avails tax benefits for the loan, the individual can still benefit from the HRA allowance provided by the employer. This is applicable when the employee owns a property but has rented out that accommodation to someone else while he / she themselves occupy a rented accommodation belonging to someone else.
This allows the employee to earn from his own property while benefiting from HRA policy which eventually lessens his / her burden of paying rent for the accommodation he has occupied.
