Summary: House Rent Allowance (HRA) plays a crucial role in tax planning for individuals under the old taxation regime. Those living in rental properties and receiving HRA can benefit from exemptions, as the new regime does not allow for HRA claims. Eligibility for HRA exemption requires individuals to earn salary income, receive HRA, and pay rent while living in rented accommodation. To claim the exemption, one must provide rent receipts or a rental agreement. The HRA exemption amount is determined by the lower of the actual HRA received, rent paid minus 10% of basic salary, or 50% (for metro cities) or 40% (for non-metro cities) of the basic salary. Taxpayers can claim both HRA and home loan benefits if they own property in one city but rent elsewhere. Additionally, those with self-occupied flats and rented accommodation in the same city can also claim both benefits. Even if a self-occupied flat is let out, individuals can still claim HRA and home loan interest deductions, but not for the principal payment. Understanding these provisions allows taxpayers to effectively reduce their tax liabilities and achieve significant savings.
Under the old regime of taxation one of the key components of salary structure to save tax is House Rent Allowance i.e. HRA. Those who are still living in rental premises and have HRA as one of the components of salary structure can take the benefit of HRA exemption under the old regime of taxation. One can’t claim HRA under the new regime of taxation.
So, while making financial planning for the next financial year, we must analyze our Tax Planning based on both regimes of taxation.
Let us discuss how HRA helps us in our Tax Planning under old regime:-
A) Eligibility – those who have – Individual
- earning income from salary
- received HRA as part of salary income
- reside in rental accommodation and pays rent
B) Evidence –
Individual must have rent paid receipts and or rental agreement in support of his or her claim
C) HRA Exemption – Lower of the following three
1. Actual HRA received
2. Actual Rent paid less 10% of Basic
3. 50% of Basic (metro cities) or 40% of Basic (non-metro cities)
One must also note the following points:-
- HRA benefit available only under old regime of taxation
- Person must be under employment
- Person must reside in rental house and not in his own house
- Agreement between landlord and tenant must be there though it is not mandatory
HRA exemption is the most claimed exemption by salaried employees under section 10(13A) of the Income Tax Act 1961. There is one more deduction related to home loan which is claimed by many taxpayers. However, many taxpayers are not aware of the fact that we can claim both of these. We will now understand how taxpayers can claim both of these exemptions and deductions in detail.
- Owned Flat in one city but living on Rent in other city:-
Many times taxpayers invested in house property which is located far from their workplace. Therefore, they rented out another house near their workplace. In such case taxpayer can claim both the benefits i.e. HRA exemption u/s 10(13A) of the Income Tax Act, 1961, if he or she is paying rent and home loan interest along with deduction under section 80C of the Income Tax Act, 1961 for principal payment.
- Owned Flat and Rented one in same city:-
There are instances where taxpayer has a self-occupied flat and rental accommodation in same city. Due to commute time, in many metro cities like Mumbai many taxpayers decided to rent out a flat near their workplace even if they have self-occupied flat in the same city but a distance away.
In these cases also taxpayer can claim both the benefits of HRA exemption and direction towards interest on home loan and principal payment.
- Self-occupied Flat let-out and have Rental accommodation in the same city:-
Many taxpayers let-out their self-occupied property on rental basis as they don’t want to keep their flat close for days. Taxpayers in such scenarios also can claim both the benefits of HRA and interest on home loan, but they cannot claim deduction towards principal payment.
Therefore as taxpayers we must be aware of such benefits. This can help taxpayers in reducing their tax liability and big savings in tax.
Hope this small write-up serves you! Be Blissful! You can reach to me at [email protected]
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