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7 things you should know about hra and tax benefits

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House Rent Allowance (HRA), is an important component in most salary slips. It is the allowance given by an employer to meet the employee’s expenses towards renting an accommodation. Though very simple in concept and calculation, the tax implications of the HRA, puzzles many a people. Here are 7 must knows, to help you utilise this component of your salary in a tax efficient manner.

1) Conditions you need to satisfy for a HRA exemption

Under Section 10 of the Income Tax Act, certain exemptions are permissible on the HRA. To claim such exemptions one must satisfy the below conditions.

-The employee must not own the property in which he is residing.

-Employees must be paying rent for the accommodation in which residing.

-Such rent must be more than 10 per cent of his/her salary.

Please not, an exemption cannot be availed if there is no HRA component in the salary.

2) Calculating HRA for tax exemption

Calculating HRA for tax exemption involves three important aspects. The least of the below three is exempt from tax.

-The actual rental allowance paid by the employer as part of the salary.

-The actual rent paid, from which, 10% of the basic pay is deducted,

-50% of the basic salary if residing in a metro or 40% if in a non-metro.

3) HRA benefits in case of rent paid to parents

If you are residing in a house owned by your parents and you are paying rent to them, technically, they are the landlords. You could, thus, claim an exemption, provided they show the same transaction in their income tax returns.

Rent to spouse is not permissible, as a husband and wife relationship is not considered commercial. Spouses are meant to stay together.

4) Proof to be submitted for HRA claims

If the house rent paid is up to Rs. 3000 per month, then rent receipt is not mandatory. Otherwise you will have to submit the rent receipt proofs to claim the tax deduction.

A one rupee revenue stamp affixed with the signature of landlord receiving the rent, with other details of the rented address, rent paid and name of the person who rents it, need to be mentioned on the receipt.

5) Meaning of salary for HRA calculation

Salary for HRA purposes is as follows:

-Basic salary

-Dearness Allowance, if provided

-Commissions earned

This salary will not include arrears of earlier years, received during the previous year for which the claim is made.

6) You could claim HRA exemption as well as a home loan tax benefit at the same time

HRA exemption could be availed even if you are claiming a home loan tax benefit. For a home loan, tax benefits are available towards the repayment of principal. So, as long as you meet the criteria for a home loan deduction as well for a HRA exemption, you could go ahead and claim both tax benefits. This could be possible, in cases where you may be working in another city.

7) Period in which HRA exemption can be claimed

The period in which the HRA is actually received from the employer, must necessarily pertain to the period in which the employee actually pays rent for his accommodation. In case HRA is received for a period in which no rental accommodation is occupied by the employee, exemption cannot be claimed.

Courtesy: InvestmentYogi

  • GSR

    Hi Suresh,
    What is this junk rule yaar. Lets say my basic 39320. Then 40% basic is 15728. Assume I am paying 10500. Then according to second rule the actual rent paid – 10% basic will come some where 6000.
    is there any reason for making this kind of rule?

  • Amitabh Sehgal

    Hi, I want to understand one thing. If there are 2 part of the rent that is rent and maintenance, can both be clubbed for the definition of the rent. As there are places where rent is inclusive of maintenance or maintenance paid by tenants.
    Please help.

    • Av Suresh

      HRA does not include maintenance charges. You can only claim rent excluding maintenance charges.

  • Naveen

    Hi Suresh,

    Can I claim wavier for my housing loan interest part and HRA at the same time?
    I got the possession of the house in Feb 14, I have been staying in a rental accommodation from April 13 to March 14. My EMIs started in April 13. I cannot clam the principle amount as there are other investments under 80C that I can claim and the 1L cap is insufficient.

    • Av Suresh

      Yes, you can claim both at the same time.

  • mail2divyesh

    I stay in City X and my Parent stay in City Y. My Parents doesnt want to migrate to my current place and stay in City Y. In that case, will i be able to claim HRA exemption for the rent paid for my parent’s accomodation?

  • GoodSamaritan

    I stay with my parents, in a newly constructed house (the land is in my father’s name and house tax is in his name). Can I show the maximum HRA exemption I am eligible, as rent paid to my father(senior citizen) and claim them under HRA? Kindly note that my father is retired pensioner from central government. Assume, the maximum HRA exemption I can get is Rs.24510 per month. For 12 months, it comes to less than 3 Lakh (As per recent announcement, upto Rs. 3 lakh, income is exempt from income tax for senior citizen). Is this correct or do I need to include the pension as well in the above calculation.
    Kindly let me know. Thanks in advance!

    • Av Suresh

      You can show maximum HRA exemption as per point 2 in this article. Your father would have to show this income along with the pension received for tax purpose. He also has to submit his PAN since HRA is more than Rs. 1 lakh p.a.

  • Neha

    I stay at a pg and my rent for 1 month is 16,000. but this includes other facilities like food, water etc. So will the total 16,000 will come under hra exemption? The receipt that they give me says- “room rent and etc”.

    • Av Suresh

      If these are specified individually, you can claim only the rent.

  • Dr.Ranganath R Kulkarni

    dear suresh,
    i need a clarification
    my actual annual HRA received is Rs. 111638 and 40% of total pay (basic and DA) is Rs. 456986 and actual annual rent paid is Rs. 78000 and staying in 40% city. my calculation for eligible HRA deduction under section 10 is Rs. – 36246 (i.e. minus). so what will be the least, do i have to neglect the minus sign and take eligible HRA as Rs. 36246 or go for Rs. 111638. kindly help
    thanks with regards

  • manish

    I stay with my parents where house is on name of my father while i m paying rent to my mother who is housewife and not paying income tax. Please suggest eligible for HRA deduction or not

    • suresh


  • Pallavi

    My salary was increased in Mar 2015 but w.e.f. April 2014. In this case, while calculating HRA, will it be on the new basic or the old basic? Kindly reply ASAP.

    • Manjeet

      it will be new w.e.f april 2014.

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