House Rent Allowance
What is HRA?
Salaried individuals who live in a rented house can claim House Rent Allowance or HRA to lower taxes. This can be partially or completely exempt from taxes. The allowance is for expenses related to rented accommodation. If you don’t live in a rented accommodation, this allowance is fully taxable.
How is tax exemption from HRA calculated?
The deduction available is the minimum of the following amounts:
- Actual HRA received
- 50% of [Basic salary + DA] for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of salary
Can I claim HRA and deduction on home loan interest as well?
Yes, you may. HRA has no bearing towards your home loan interest deduction. Both can be claimed.
Ask for your landlord’s PAN
If you have taken a house on rent and are making a payment in excess of of Rs 8,333 per month – remember to obtain the landlord’s PAN or you may lose out on the HRA exemption. Landlords without a PAN must be willing to give you a declaration.
Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making payment towards rent.
Read more about it here.
What if my employer doesn’t provide me with HRA?
If you are making payments towards rent for any furnished or unfurnished accommodation occupied by you for your own residence, but do not receive HRA from your employer, you can claim deduction under section 80GG.
Conditions that must be fulfilled to claim this deduction –
- You are self employed or salaried
- You have not received HRA at any time during the year for which you are claiming 80GG
- You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession.
In case you own any residential property at any place, for which you have income from house property under applicable sections (as a self occupied property), no deduction under section 80GG is allowed.
How to claim Section 80GG deduction?
The lowest of these will be considered as the deduction under this section –
- Rs 2,000 per month
- 25% of total income
- Actual Rent less 10% of Income
(In both the above cases, income to exclude long term capital gain, short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U. Also income is before making deduction under section 80GG)