Your ultimate guide to claim HRA

A vital component of an employee’s salary is the House Rent Allowance (HRA). According to rule 2A of the Income Tax Rules (ITR) 1962, this CTC component is not entirely taxable. In this guide, we will discuss details regarding how to claim HRA tax benefits, including eligibility, calculation, and more, enabling you to make the most of this component.

What is HRA?

House Rent Allowance (HRA) is an allowance provided by the employer to the employee as part of their salary to help cover rented accommodation costs.

Impact of new tax regime on HRA

The HRA exemption is not covered under the new tax regime. The new tax regime has removed all deductions and exemptions except for National Pension Scheme (NPS) deposits (up to Rs 50,000) and interest paid on home loans (up to Rs 2 lakh). Hence, if you want to claim HRA tax deductions, you will have to file your income tax returns (ITR) under the old tax regime.

Role of location in HRA calculation

See also: Which cities are considered metro cities in India for HRA calculation?

Who is eligible to claim tax deductions on HRA?

The following criteria must be met to claim tax deductions on HRA:

1. Salaried employee
   Only a salaried employee can claim tax deductions on HRA. Self-employed individuals do not qualify for these deductions.
2. Employee must live on rent
   Tax benefits on HRA can be claimed only if you are staying in a rented property and paying rent. It is legally permissible to stay in your parent’s house, pay rent to them, and claim HRA tax benefits.
3. HRA must be a part of the CTC
   The employee must receive HRA as part of their salary. When opting for this benefit, you must inform your employer about residing in a rental property and provide rental receipts.

How to calculate HRA tax exemption?

The HRA tax exemption depends on the employee’s salary, the HRA component in the salary, the rent paid, and the property location. It is the lowest of the following:

• Salary received by the employee
• 50% of salary if the employee stays in a metro city, and 40% if the employee stays in a non-metro city
• Actual rent paid minus 10% of your basic salary plus DA

You can calculate the HRA tax exemption using an HRA calculator. Calculations can be done annually if the mentioned factors remain constant throughout the financial year. If the parameters change, then the HRA tax exemption should be calculated monthly.

Example Calculation

Case 1: Kishore earns a monthly salary of ₹40,000 (basic salary + DA).
HRA received: Rs 20,000
He stays in Mumbai (metro city) and pays a rent of Rs 15,000. The HRA benefit will be the lowest of the following three cases for exemption in that financial year:

• Actual HRA: Rs 20,000 x 12 = Rs 2,40,000
• 50% of salary: 50% of Rs 4,80,000 = Rs 2,40,000
• Excess of rent paid annually over 10% of annual salary:
  10% of annual salary = Rs 12,000
  Excess rent = Rs 1,32,000

Because option 3—the excess rent paid annually—is the lowest, the HRA exemption will be available on this amount.

What documents are required to claim HRA?

The following documents are required to claim HRA tax exemption:

• Rent receipts: Proof that you reside in a rented property. This should include the landlord’s name, tenant’s name, address, rental period, and amount paid. Producing fake rental receipts is a criminal offence and will be punished severely.
• Utility bills: Such as electricity and water bills, to support your claim.
• Rent agreement: This should include all details of the rented property, the monthly rent, payment dates, and legal implications for breaching the agreement.
• PAN card of landlord: Mandatory if the annual rent exceeds Rs 1,00,000.
• Employee declaration form: This informs the employer that an employee will avail of the HRA facility, allowing employers to calculate the eligible HRA exemption limit.

Steps to claim HRA exemption while filing ITR

You should submit the income declaration form 12BB to your employer while claiming HRA exemption. If this is not possible, you can claim HRA exemption while filing your ITR.

• Calculate the HRA exemption amount.
• Calculate the taxable salary.
• File income tax returns including HRA details, the actual HRA received, the lowest applicable data for HRA exemption, and the calculated HRA exemption amount.
• Attach all supporting documents and form 12BB.

When should the ITR be filed for claiming HRA tax exemption?

The deadline to file ITR is July 31 every year.

What can a tenant do if he doesn’t receive HRA?

If an employee stays in rented accommodation but does not receive HRA from the employer, they can still apply for HRA tax exemption under Section 80GG. The eligibility criteria are:

• You must be self-employed or salaried.
• You must not have received any HRA as part of your income (basic salary).
• You or your immediate family must not own the property where you currently reside.

Steps to follow to claim HRA under 80GG

• Fill out Form 10BA by logging onto the ITR website.
• Select the assessment year.
• Enter property details, including landlord’s name, tenant’s name, address, rent paid, and tenure.

How can you avail tax benefits on both HRA and home loan?

If you are staying on rent and have also taken a home loan for property purchase, you can avail tax benefits on both HRA and home loan under the old tax regime. Thus, you can get:

• HRA exemption for the rent you have paid.
• Home loan interest deduction under Section 24, 80EE, or 80EEA.
• Principal repayment deduction under Section 80C.

Housing.com POV

HRA tax deductions helps people on rent claim a sizable amount. However, this is only valid on old tax regime and not on the new tax regime. While planning on what regime you would like to opt to, do a careful calculation and arrive at the right one.