HOUSE rent allowance, or HRA, is a major component of your salary. This is given by an employer to an employee to meet the cost of renting a home. As a salaried employee you can claim a tax exemption on such an amount. But there are certain conditions that you need to understand to claim such exemptions.

How is the exemption on HRA calculated?

The tax exemption on HRA is computed as the minimum of following three conditions: i) Actual HRA as per you pay slip; ii) 40%/ 50% of your basic salary; iii) The rent amount minus 10% of the salary

If you stay in a metro —Mumbai, Kolkata, Delhi or Chennai — your HRA would be 50% of your salary. In other cities/towns, it would be 40% of salary. For example, if your salary is Rs 40,000 and you live in Mumbai, HRA would be Rs 20,000 (50% of the salary). Let’s assume that you a pay a rent of Rs 15,000. The amount of rent paid minus 10% of the salary is Rs 11,000. The least of these is Rs 11,000, which would be taken as the HRA exemption. Hence the balance (Rs 20000- Rs 11000) Rs 9,000 will be taxed.

When can you claim exemption on HRA?

You can claim exemption on rent given to parents. For example, you live with your parents and pay them rent. This would technically make your parents the landlords. In such an case, one of your parents should declare the rent paid by you in his/her personal income tax return to prevent litigation in future. However, you cannot claim exemption on rent paid to your spouse. Tax experts say that the relationship between a husband and wife is not commercial in nature and they are supposed to stay together.

You should provide your employer with accurate rent information so that the company can credit you with the eligible amount of relief before deducting tax at source. Another alternative is that you can also claim such exemption when you file the tax return and seek a refund.

If you receive HRA for the period during which you were not occupying a rental accommodation, then you can’t claim any tax exemption. In all cases it is advisable for you to maintain rent receipts as they are the only proof for rent payments.

Is your landlord an NRI?

According to Section 195, all Indian income of an NRI is subject to TDS. This rule applies to rent too. Any resident Indian is subjected to TDS for rents of over Rs 1.80 lakh per annum. But if you have rented a house from an NRI landlord, the onus is on you to deduct tax at source and pay it to the government. The TDS is a flat 30.9%.

When can you enjoy the twin benefits of home loan and HRA?

If you have taken a home loan to buy a house, say, in Mumbai, but you reside in another city, you can get tax benefits on your housing loan.

If you have bought a house but stay in a rental accommodation in the same city because your house is not ready for possession, you are entitled to tax benefits on HRA. You can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete for possession, the HRA benefit stops.

However, if you have bought a house by taking a home loan and stay in a rented accommodation after giving you house on rent, you will be entitled to all the tax benefits mentioned above.

Rent-free accommodation vs HRA

The government had announced the new perquisite rules in December 2009, which are effective retrospectively from April 1, 2009. The value of the perquisite determined in case of furnished accommodation is 10% per annum of the cost of furniture if owned by the employer or actual hire charges ( paid or payable) if the furniture is hired by the employer. In case of hotel accommodation, the perquisite value is to be determined as 24% of the salary paid or payable or actual hotel charges paid by the employer, whichever is lower, for the period during which such accommodation is provided to the employee.

So under the new rules, should one opt for rent-free accommodation or claim exemption on HRA? You should take a decision keeping in view your requirements, salary level, perquisite value and the tax impact.

(Republished with Amendments)

More Under Income Tax

37 Comments

  1. Manish says:

    My Basic is 50000 . I live in a rented house at Gurugram(15000), I also have rented furniture which includes Sofa, Bed, Dinning and Kitchen Utensils (12000), how can i avail HRA in such scenario ?

  2. Hemant Bisen says:

    She is Government servant ,she received rent from government of Rs 21000/-pm in Mumbai . She had flat in
    another city with readypussion .she paid EMI of Rs 161000/- interest n principle of Rs 68000/-of housing loan which was purchase for parents .She can take both benefits I.e House rent Benefits as well as hsg intt benefits
    Pl suggest me

  3. Latha says:

    I live in Bangalore and I am paying a rent of Rs20,000 .
    what is the amt I should pay to the govt
    My landlord says I need to have a TAN and provide him with Form 16B.
    what is the procedure

    can u please enlighten

  4. Sachin says:

    I live in Delhi and taken a flat on rent.

    I have purchased 2 ready to move in properties and paying 6L as cumulative interest on housing loans. Both the properties are given on rent and generate rental income of 2L.

    Am i eligible to claim 6L – 2L = 4L will these 4 lacs deducted out of the taxable income?

    My yearly income is around 15L.

    Please suggest

  5. MANISH says:

    Husband & wife both working in the same organisation but declaring that they are living in different houses whithin the same area and are paying rent separately for their rented house to claim HRA exemption. CAn we allow exemption to both employees?

  6. A. Bright says:

    I am not receiving any house rent allowance (HRA) but I am paying house rent for Rs. 2,000 per month. Can I allowed for any deduction from my salary income?” …

  7. hitesh k c says:

    Sir,
    I am Director-employee of a pvt co. I own a house and paying interest on house loan. I need clarification for the following:
    1) Can I lease my own house to my co and co let out the same house to me for which I will pay rent to co. so that I can claim total h.loan interest as well HRA deduction? I will offer lease rent as income from property. The employer co will show lease rent paid to me less rent recd from me as expenses in its book.

  8. Santhosh says:

    currently im staying in rented home in goa and i bought house in same city where my parents are staying. whether im eligible for both hra and loan tax benefits.

  9. Deepak says:

    Hi I have a flat on both me and my wife’s name in bangalore, now i am buying a flat in pune but as my wife’s office is bit far so cannot stay there but moving near to my wife’s office in a rental accomodation. i will give pune flat on rent. if we register pune flat on both of our name, can i claim tax deduction on hra and interest deduction on both flats. then hw much it will be please explain using example.

    Thanks in Advance
    Deepak

  10. Bipan says:

    I am an employee in private company (Reliance Communications Ltd) living in a rented property in Panchkula ( Haryana) approx 10-12 kms from office while I have my own flat (possession taken) in Zirakpur ( Punjab) approx 20-25 kms from office (chandigarh).I have taken a housing loan from PNB housing finance against this flat which is in Zirakpur (Punjab).Because of following reasons it is not possible to commute daily to my office from Zirakpur-

    1.Zirakpur falls too far from my existing office.

    2.Roads approachable to my flat are still under massive construction.

    Kindly advice if tax benefits on both HRA and housing loan can be taken together in above case.

  11. Bipan says:

    I am an employee in private company living in a rented property in Panchkula ( Haryana) approx 10-12 kms from office while I have my own flat (possession taken) in Zirakpur ( Punjab) ,different city,approx 20-25 kms from office.I have taken a housing loan from PNB housing finance against this flat which is in Zirakpur (Punjab).Because of following reasons it is not possible to commute daily to my office from Zirakpur-

    1.Zirakpur falls too far from my existing office.

    2.Roads approachable to my flat are still under massive construction.

    Kindly advice if tax benefits on both HRA and housing loan can be taken together in above case.

  12. Pd vijay says:

    I confused for exemption of HRA. if both spouse are salaried employee in same city & both received HRA and live together in same rented house. so who claim exemption in different – different condition ? :-
    1. both pay half half rent

    2. both pay 1month one & one month another

    3. or pay sepratly one of them

  13. deepak says:

    can u plz suggest:
    i m government employee provided with rent free accomodation in service condition.
    however i m residing in rented accomodation as rent free accomodation are not available. i am receving HRA. According to me my HRA – rent paid = x amt is only taxable and not entire hra

  14. Ajay says:

    Hi

    I am residing in Bangalore in a rented house and taken a flat with home loan in Pune. My interest on home loan is more than Rs. 2.5 Lakhs after considering rent received, 30% maintenance deduction and muncipality tax deduction. Will I be able to claim the total interest for income-tax benefit or will it be limited Rs. 1.5 lakhs. Need help in this
    Regards
    Ajay

  15. anjalee says:

    i’m staying in govt accomodation allotted to my husband. I’m also working and both of us do not get HRA. what about tax implication for me and any way to get some benefit?

  16. Kapil Bhardwaj says:

    TDS Deduction on HRA

    If I’m paying a House Rent Rs. 11,000/- per month(1.32 Lacs PA) then TDS should be deducted by me on my Land Lord. Further, if I’m paying the same to flat renewal etc. then what can I do?

    Regards,
    Kapil Bhardwaj

  17. ANIRBAN LAHIRI says:

    Query 1.

    I am the disbursing officer of Form 16 in my company. One of the employee produces a rent receipt to me for claiming deduction for HRA in his taxable income which I know is totally false – signature of the landlord is false and the address is also false. My question is:-
    Am I bound to give the exemption as the employee is producing a receipt even though for sure it is a false statement.
    If not, what can I do as per Law.

    1. Ranjan says:

      You can deny giving exemption, if you feel the particulars furnished are fake or misleading. But make sure if the documents furnished are not in order.

    2. manish agarwaL says:

      Mr. Lahiri,

      Employer is not responsible for ensuring authenticity of the documents submitted by employee for income tax purpose. It is employee who is responsible for it. At most you should take care that documents should not look fake / fale prima facie.

    3. pcchowdhry says:

      Mr Lahiri,
      How do you know that the rent is actually not paid at all? The receipt may not have been signed by the house owner but the rent has been actually paid and a receipt produced which if required the owner will testify as having received the rent. You should not act as a detective policeman but as a helpful Disbursing Officer to your colleagues. Leave the rest to the ITO.
      pcc

  18. GRP says:

    The Rent paid less 10% of Salary shall be = Rent paid Rs 15,000.
    10% of Salary is 40000 x 10% = 4000. Therefore the Rent paid Less 10% of Salary shall be Rs 11,000.
    HRA Exempted from Taxable Income will be Rs 11,000 and not Rs 6,000.

    Taxable HRA shall be Rs 20,000 – 11,000 = 9,000

    Prasadh

  19. cyrus says:

    It is 100% correct. You cann’t club HRA with Salary while calculating 10% of Excess of Salary over rent paid, In above example both HRA and Salary is totalled and then 10% calculated. It is wrong. Actuall it is 10% of Rs. 40000= i.e Rs. 4000.

  20. vinodgupta says:

    Dear Anil,
    you are right because income received by you by letting your house property is taxable under the head house property on which you have to pay tax separetely and you can claim deduction regarding payment of interest under section 24(b)even though your owned flat and place of residence int the same locality

  21. Raghunath K says:

    I feel, even in case of own property is rented out and staying in another rented property in the same city, should eligible for HRA as well loss from house property. When loss from House property can be considered by employer as declared by the employee, why this doubt? As per Act, employer has to consider the loss from house property either from self occupied or rented out for TDS purpose. Please clarify my understanding is correct???

  22. akhilesh says:

    Three conditions specified in sec.24(b) for allowing deduction (1,50,000) on borrowed capital advanced for the purpose of acquisition of house, if three conditions are not satisfied, then interestt on borrowed capital is deductible of Rs.30,000/-.

  23. srinivasan says:

    to the querry of Ar Anil… he has to claim in his rerurn and the compnay is reight in not considering it for the purpose of TDS

  24. Amit Tibra says:

    For Antaryami Acharya – Its Basic salary + Dearness Allowance + commission as a % of turnover achieved by the employee calculated on due basis.

  25. CMA. R.LGARG - FICWA says:

    IN THE EXAMPLE GIVEN ABOVE SALARY IS RS 40000 PLUS HRA RS 20000. RENT PAID IS RS 15000. WHILE CALCULATING 10 % OF SALARY YOU HAVE CLUBBED HRA WITH SALARY, WHETHER IT SHOULD BE 10 % ON SALARY OF rS 40 000 OR OIT SHOULD BE 10 % ON SALARY rS 40000 PLUS HRS RS 20000. OKEASE CLARIFY.

  26. T Hema Sudhakar says:

    In the given example above 10% of salary is taken as 6000. in my opinion 10% of salary shall be taken excluding HRA. ie. 10% of Rs40000/- is Rs.4000. The rent paid is Rs.15000/- The exemption amount shall be automatically shall be Rs.11000 (15000-4000) istead of Rs9000.

  27. Antaryami Acharya says:

    The article is educative. Kindly clarify the constituents of “Salary” on which the percentage is to be calculated.

  28. PANKAJ GOYAL says:

    What will be position, if i have taken housing loan against the property,which is in my name,but my parents are residing therein.

    I am residing in a rental accomodation near to my workplace.

    Wether i be elgibile for HRA benefit as well as Housing loan benefit.

  29. RAJESH says:

    Eg. given for clarification of HRA is not proper as for calculation of excess of rent paid over 10% of salary,
    how one can take the HRA condition of 40% or 50% in calculation of salary amount.

  30. manikanta says:

    Really a great article will clarify the doubts regarding HRA exemptions

    our company is providing rent free accomodation to us since its a remote area location and we are paying rent in our home town where our family lives

    our query is whether we can claim HRA in this regard or not

  31. Sunil Sanganeria says:

    If your rented property and owned property are in same toen/city, both HRA and interest on Home Loan would not be allowed. In my opinion, youe employer is right.

  32. Anil says:

    Really informative article. As per the article, if one has bought a house by taking a home loan and stay in a rented accommodation after giving his house on rent, he will be entitled to all the tax benefits.

    Mine case is same but my company is refusing to give both benefits of HRA exemption and home loan exemption. I am staying in rented house which is very near to my office (1 km) and the flat bought by me is little bit too far (6-7 kms from my office) so i don’t have plans to shift right now and willing to rent it out.

    Can you please share the conditions/rules that needs to be fulfilled if both the benefits are required.

    Anil

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