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Tips to Avoid Rejection on House Rent Allowance Exemption

Popularly called as HRA, House Rent Allowance is a component of salary, in both private as well as public sectors that is given by employers to their employees. Persons living in a rented apartment can claim complete or partial HRA exemption. There is a provision of HRA exemption under section 10. In the case of employees not living in a rented accommodation HRA is fully taxable.

How to Calculate HRA

Calculation of your HRA depends primarily on four factors.

These factors are as follows:

  • Salary
  • HRA Received
  • Rent paid
  • Location of rented accommodation (metro, non-metro or rural)

HRA Exemption / Deduction

As per section 10(13A), HRA is exempted to the minimum of the three amounts.

HRA Exemption image

While calculating your HRA exemption, take these three factors into account:

  • Actual HRA received from the employer
  • 40% of the basic salary is treated as HRA. In the case of metro cities like Delhi, Mumbai, Kolkata, and Chennai it is 50%.
  • Rent paid minus 10% of basic salary

You can also use HRA Exemption Calculator available with us.

Understand HRA Exemption with an Example

An example will make it clearer. If you’re living in a city like Delhi where you earn a salary of Rs. 80 thousand. You have rented an apartment at a rent of Rs. 30 thousand a month. Since you’re living in Delhi you’re eligible for an HRA of 40 thousand that is 50%.

HRA you receives from your company is Rs. 50,000.

Excess of rent paid over 10% of total salary is 30,000 – 10% of 80 thousand that means 30,000 – 8,000 = 22,000.

So, the net taxable HRA is 50,000 – 22,000 = 28000

Some Basic HRA Rules

If you’re working as an employee in private or public sector you should some of the basic rules of HRA.

  • If a person is employed in a non-metro city 40% of his basic salary is considered as HRA. For the employees in metro cities like Delhi, Mumbai. Chennai and Kolkata, 50% of the basic salary is considered as HRA.
  • To claim HRA it is not mandatory to pay rent to a landlord. You can pay rent to your parent and submit the receipts to get HRA exemption.
  • Income tax laws don’t permit to claim HRA on submission of a receipt that shows you have paid rent to your spouse.
  • A rent receipt is an essential document to claim HRA.
  • While claiming HRA PAN Card details of the landlord should also be submitted so that relevant tax deductions can be made from his/her income made through renting a property.
  • PAN details of the landlord are mandatory only if the rent paid is more than 1 lac rupees per annum.
  • There is no HRA exemption for an employee who is living on his own property.

How to make HRA Claim?

While claiming HRA or house rent allowance claim, you need to provide your rent receipts along with PAN details of your landlord if the rent paid in a financial year exceeds Rs.1 Lac. In case your landlord doesn’t possess a PAN number, then the Income Tax department has a number of other measures to verify if the provided information is true. So those claiming a House Rent Allowance must not mislead the Income Tax Department.

Claiming Tax Benefits on Home Loan as well as HRA?

You can claim HRA benefits as long as you are staying in a rented accommodation. One can claim tax benefits on your home loan as well as HRA tax benefits if you have rented out your own house and living in a rented accommodation. In this particular case, you have to disclose your rental income or income from the property so that suitable tax can be deducted by the government.

In case both owned and rented house are in the same city, then you can’t avail exemption on both. If you’re able to prove that your owned property is far from you work location hence you require to rent an accommodation then you can claim exemption on housing loan as well as house rent allowance.

How to Avoid HRA Claim Rejection?
  • If you claim that you have paid rent to your relatives like the mother, the father, the spouse, you should have evidence of your stay in the form of a rent agreement.
  • It is hard to provide proof of the rent paid in cash so it's better to pay the rent by transferring it to a bank account.
  • If the rent paid is taxable at your close relatives end, make sure that he or she files ITR and show rental receipts as the return of the income.
  • Make sure that addresses mentioned in ration card, bank statement and return of income are same. The Income Tax Department may verify it.
  • Make sure that rental payment is commensurate with the market value of the property.
  • Make sure that rent paid is included in landlord’s income.
  • If you are staying in an accommodation of society of your relative, don’t forget to inform the same to the secretary of society about your tenancy.

Frequently Asked Questions

Q. Will my HRA vary if I shift from a normal city to a metropolitan city?
Yes, As per the rules, HRA depends upon the city of your stay. When you move from a non-metro city to a metro city, your HRA will increase from 40% to 50% of your basic salary.
Q. What are the documents required to claim HRA Exemption?
While claiming HRA you are required to provide the following documents:
  • PAN Card details of the landlord, if the annual rent paid exceeds Rs.1 lac.
  • Rent receipt
  • Photocopy of rent agreement if needed
Q. Can I claim HRA Exemption as well as Home Loan Tax Exemption?
Yes, If you can prove that your owned property is quite far from your workplace. You should submit sufficient proofs for that.
Q. Can I pay rent to my father to avail HRA benefit?
Yes. The rent to your parents can be used for exemption of HRA.
Q. What happens if the city of residence and that of work is different?
In this condition, the place of residence, and not the place of work, will be considered for HRA calculation.
Q. What if the employer refuses to allow the HRA Tax Benefit?
Several employees face this problem. But there is no need to worry. You can still claim the HRA while filing your tax return and get the exempted amount as the refund of excess TDS.
Q. What should I do, if I forget to submit the documents to my employer?
If you have failed to submit your rent receipts within time to your company HR, you can still claim HRA while filing your income tax returns. To claim it, you should include the HRA amount in your taxable income before calculating the payable tax.
Q. Can both working spouses claim HRA Tax benefit separately?
Yes. If both of you are paying rent separately. In this case, both are required to furnish separate rent receipts. Claiming HRA with duplicate rent receipts should be avoided at all costs
Q. What if my landlord doesn’t give me rent receipts?
In that case, you won’t be able to claim HRA exemption. Before renting a house make sure that your landlord gives rent receipts.
Q. Can all employees claim HRA?
No. As it is not part of the salary so not all employees can claim HRA.