How To Avail of Benefits On House Rent Allowance
The House Rent Allowance (HRA) is an important component of your salary package, under which a fixed amount is paid to you by your employer every month to meet the cost of renting an accommodation. You can also avail of tax exemptions on HRA under Sector 10 (13A) of the Income Tax Act.
To clear your doubts on how the tax exemption on HRA is calculated, here is a list of questions and their answers:
How is HRA accounted for in the case of a salaried individual and a self-employed professional?
Under Section 10 (13A) of the Income Tax Act, 1961, salaried people can avail of HRA exemption. While self-employed professionals are not covered under this Act, they can claim benefits on the house rent expenses incurred under Section 80GG.
What are the factors in calculating HRA for the salaried individual?
While calculating HRA for tax exemption, four aspects of a salaried individual are taken into account:
- HRA received
- The actual rent paid
- Place of residence (metro or non-metro)
If these aspects remain constant through the year, 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, the amount is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.
Your place of residence is significant in HRA calculation, as for a metro the tax exemption for HRA is 50 per cent of the basic salary, while for non-metros it is 40 per cent of the basic salary.
Can I pay rent to my parents or spouse to avail of HRA benefits?
You can pay rent to your parents, but they will be entitled to pay tax for the same. On the other hand, you cannot pay rent to your spouse.
Do I need to submit any proof for my HRA claim?
You need to submit proof of rent paid through rent receipts. It should have a one rupee revenue stamp, affixed with the signature of the person who has received the rent, residence address, amount paid, name of the person who rents it, etc.
How do I calculate my HRA?
To figure out how much HRA exemption you are eligible for, consider these three factors:
- The actual rent allowance the employer provides you as part of your salary
- The actual rent you pay for your house, from which 10 per cent of your basic pay is deducted
- 50 per cent of your basic salary when you reside in a metro or 40 per cent, if you reside in a non-metro.
Of these there, the amount with the minimum value is allowed as tax exemption on your HRA. To make the most of your HRA tax benefits, you may get your salary package restructured.
Sumit Kumar earns a basic salary of Rs 40,000 per month and rents an apartment in Delhi for Rs 20,000 per month. The HRA he receives is Rs 20,000. (HRA is generally 50 per cent in metros and 40 per cent in non-metros).
These options will be taken into account to find out his HRA tax exemption:
*Actual HRA received: Rs 20,000,
*50 per cent of the basic salary: Rs 20,000
*Excess of rent paid over 10 per cent of salary: Rs 20,000 - Rs 4,000 (10 per cent 0f 40,000) = Rs 16,000
The value considered for Kumar's actual HRA exemption will be the minimum value of the above figures. Kumar, considering 30 per cent as the standard tax rate, will save Rs 4,800 per month.
Can I avail of tax benefits on my home loan and HRA together?
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 of 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. However, you need to account for any rental income you receive from the property you own under income from other sources.