The rental housing market has many options, available at various rates. Consequently, it may be difficult for a prospective tenant to figure out how much to spend as rent. The answer to this, depends on one’s salary/income.
“Ideally, you should not be paying more than 30% of your salary towards rent and utilities (such as maintenance/water/electricity expenses). If you consider a monthly take-home salary of Rs 60,000, ideally, your rent should not be more than Rs 15,000,” advises Adhil Shetty, CEO of BankBazaar.com.
Shetty suggests you first determine where you want to live, as well as the security in the region, its accessibility and the commute to your workplace.
“Factor in all these aspects, before taking a call. For instance, you might get a good house in a reasonably-priced locality. However, it might make your commute lengthier and more expensive. So, a slightly smaller but expensive house closer to your workplace, might be a better trade-off,” says Shetty.
Experts point out that while residential rental yields have remained low in India to the tune of 2%-3%, in urban centres such as Mumbai, individuals often spend as much as 40%-50% of their monthly income on accommodation. Despite lower rental yields, the cost of accommodation in urban India continues to remain high.
Impact of HRA on home rent
Shubika Bilkha, business head at REMI explains that “House Rent Allowance (HRA) is received by individuals who receive a salary. Under Section 10 (13A) of the Income Tax Act, a deduction is permissible and you can claim exemption on your HRA, if you stay in a rented property and receive HRA from your employer. This is based on the lower of the three:
- The actual HRA received.
- Rent paid in excess of 10% of the salary (defined as Basic + DA + Commission as a percentage of T/O).
- For metros, an amount = 50% of the salary and for non-metros, an amount = 40% of the salary.”
Regardless of the actual rent paid, if any of the components is lower, that would be the maximum exemption possible. If there is a huge variation in the rent paid and the basic salary, you could negotiate with your employer, for a restructuring of your salary package, to reflect a higher basic salary.
Managing the rent payment, if the salary is not adequate
The ideal scenario would be one, where your monthly rent does not exceed the stipulated HRA amount, to avail the maximum tax benefits. However, this is often not possible, given the high price of urban real estate. Hence, it becomes incumbent on the individual, to find a good balance between various monthly expenses. Consequently, the first thing to do, is draw up a budget so that you know where and how much you are spending. Follow the 30% rule, while selecting a rental property. If possible, bring that percentage even lower, so that your monthly outflows are not too high. You may also want to compromise on other luxuries, such as eating out frequently, to save enough to pay your rent.
“Calculate your priorities and figure out what you need and what you can do without. The most prudent thing to do, is to look for a less expensive place, with fewer amenities or luxuries that might be easier on the pocket. For instance, if you are single, you may not need to stay near the top schools in the locality and instead, opt for a slightly less premium location. However, security is not a luxury, but a necessity,” adds Shetty. Other options to reduce rental outgo, include sharing your living space by getting a roommate or moving in as a paying guest.