Under House Rent Allowance rules and regulations, you will get exemption up to a minimum of the following amounts:
The salary for this calculation means the basic salary which includes dearness allowance if the terms of employment provide for it and commission based on a fixed percentage of turnover achieved by the employee.
Please note that if the employee is staying in his own house or not paying any rent, he will not be eligible for the above tax exemption.
From the above rules, it is clear that there are 4 factors which decide your eligibility for House Rent Allowance (HRA) exemption. They are:
Meaning of salary for the purpose of computing HRA Exemption
The minimum of the following amount shall be exempt
Therefore, Rs. 36000 shall be exempt and the balance Rs. 24000 shall be included in gross salary and the same shall taxable.
When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.
You can pay rent to your parents, however, they need to pay tax on the same or account the same in calculating their taxable income.
On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these.
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc.
If you pay rent in excess of Rs 1 lakh p.a. then it is necessary to mention PAN details of your landlord in your tax return to claim tax exemption on HRA.
It is necessary to get PAN details of your employer to claim tax benefits on HRA. However, if your landlord does not have a PAN then you must get a declaration from him regarding the same. It is better that you get these details (PAN or declaration) before you take place on rent in order to avoid hassles at the time of filing return.