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Time to declare house rent payments

With the year coming to an end, salaried people rush to submit their tax declarations to their employers. It hurts when your employer deducts tax from your reward for 30 days of hard work. In order to save tax, one has to jump through all kinds of hoops; investments in ELSS, fresh insurance policies, PPF, etc. House Rent Allowance(HRA) is one of the favourite tools of the salaried class to save taxes. HRA exemption gives big relief to those paying rent for their accommodation.

What is HRA?

HRA deduction u/s.10(13A) of the Income Tax Act, 1961 has substantial impact on the tax liability. The deduction available under this section is lower of the below three amounts:

1. Actual HRA received

2. 50% of Salary for those living in metro and 40% for non-metros

3. Actual rent paid less 10% of Salary

Metro cities for this provision include Delhi, Mumbai, Chennai or Kolkata; and Salary includes basic salary component plus dearness allowance.

How does HRA work?

Let us understand the HRA calculation if your Gross Salary is Rs. 75000 per month (Basic 40000 + HRA 20000 + Other Allowances 15000) and you are paying monthly rent of Rs. 25000. In this case, lower of the below three would be available as exemption.

Sr. Particulars Metro City Non-Metro City
1. Actual HRA Received 20,000 20,000
2. 50% or 40% of Basic Salary 20,000 16,000
3. Rent Paid – 10% of Basic Salary 21,000 21,000
4. HRA Exemption u/s.10(13A) 20,000 16,000

How to claim HRA?

You are required to furnish rent receipts or rent agreement to your employer for claiming HRA exemption. Further if annual rent paid exceeds Rs.1Lac, it is mandatory to report PAN of the landlord to your employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with his name and address should be filed.

For any reason, in case your employer does not provide HRA exemption in your Form 16 (Salary Certificate), you can still claim the same while filing your tax return by calculating it in the manner explained above.

What if your salary does not comprise HRA?

Some employees might not have HRA component in their salary. They can still claim the deduction for rent paid under Section 80GG of the Income Tax Act, 1961 wherein least of the below three is available as a deduction:

1. Rent paid in excess of 10% of Total Income (Note 1)

2. 25% of the total of the Total Income

3. Rs. 5,000 per month

Note 1 – Total Income here is calculated as gross total income minus long-term capital gains, the short-term capital where Securities Transaction Tax (STT) has been paid and deductions available under Sections 80C to 80U, except Section 80GG.

What if you are paying rent more than 50,000 a month?

If you are paying accommodation rent of more than Rs.50,000 a month then you are also liable to deduct tax from the rent payment to your landlord under section 194-IB at the rate of 5%.

House Rent Allowance (HRA) Taxability & calculation

(Republished with Amendments)


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Can be reached at work@namitagad.com CA. Namita Gad has served over 500 clients including start-ups & corporates and headed as CFO for one of the technology start-ups. Her expertise lies in areas such as valuations of shares, company law compliance, due diligence assistance, funding formalities View Full Profile

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July 2024