8 Questions about Tax Exemption on HRA

Tax Benefit on HRA - House Rent Allowance

Tax Benefit on HRA – House Rent Allowance

Its time when you would be asked to submit proof of investment to your employer to save taxes. HRA (House Rent Allowance) has been one thing which confuses many people. so here answers to 8 frequently asked questions about HRA:

  1. When can you claim HRA?
  2. How to calculate tax exemption for HRA?
  3. What are proofs to be submitted for claiming HRA?
  4. Can HRA be claimed if you stay with parents in their house?
  5. Can HRA be claimed if you pay rent to spouse?
  6. Can HRA exemption as well as a home loan tax benefit be claimed at the same time?
  7. What if you have taken home loan and have bought a home in the same city but are not residing in it for genuine reasons?
  8. Period in which HRA exemption can be claimed

Read on…

When can you claim HRA?

Any salaried employee can claim HRA if they satisfy the following condition:

  1. HRA allowance is part of the Salary package
  2. The employee is staying in a rented accommodation and paying rent for it
  3. The rent paid exceeds 10% of the salary

Also Read: How to Claim HRA Tax Exemptions while filing Income Tax Return?

How to calculate tax exemption for HRA?

The maximum HRA that can be claimed for tax exemption is minimum of

  1. Actual HRA Received or
  2. 40% (50% for metros) of Basic + Dearness Allowance or
  3. Rent paid (-) 10% of (Basic + Dearness Allowance)

The HRA calculation has been explained by an example:

Assumptions

  • HRA per month = Rs 15,000
  • Basic monthly salary = Rs 30,000
  • Dearness Allowance = Nil
  • Monthly rent = Rs 12,000
  • Rental accommodation is in Mumbai (which is metro)

HRA Exemption Calculation:

  • Actual amount of HRA = Rs 15,000
  • 50% of salary = 50% x (30,000 + 0) = Rs 15,000
  • Actual rent paid – 10% of salary = Rs 12,000 – [10% of (30,000 + 0)] = 12,000 – 3,000 = Rs 9,000

Download: ebook on Tax Planning for FY 2017-18

Rs 9,000 being the least of the three amounts will be the exemption from HRA. The balance HRA of Rs 6,000 (15,000-Rs 9,000) is taxable.

What are proofs to be submitted for claiming HRA?

If the rent paid is less than Rs. 3,000 per month you need not submit any proof. But if the rent is more than Rs 3,000 you need to submit rent receipt / rent agreement to your employer. 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.

In case the annual rent exceeds Rs 1 lakh you also need to submit PAN Card copy of the landlord. In case landlord does not have PAN Card, you would need to submit a declaration from landlord stating the same. Download the declaration for landlord from here.

It is wise to still keep rent receipt and rent agreement because, at the time of assessment, the Income Tax Officer may demand the receipts/ agreement.

Also Read: Can I claim Tax Benefit on both HRA & Home Loan?

Can HRA be claimed if you stay with parents in their house?

Yes, if your parents own the house you can pay them rent. This would make your parents landlord. But .they will have to declare it in their personal income tax return to prevent litigation in the future.

In case your parents don’t pay any tax or are in lower tax slab its good idea to pay them rent. This can be good strategy to save tax outgo from family.

Also Read: Best Tax Saving Investments

Can HRA be claimed if you pay rent to spouse?

You cannot claim rent paid to spouse. The relationship between a husband and wife is not commercial in nature; a husband and wife are supposed to stay together. So payment of rent to a spouse will not be accepted by the income tax authorities.

Can HRA exemption as well as a home loan tax benefit be claimed at the same time?

If you have taken home loan for buying a house in a different city from where you are working, you are eligible to claim both HRA exemption and Home Loan Tax benefits.

What if you have taken home loan and have bought a home in the same city but are not residing in it for genuine reasons?

It could be that the home is at a considerable distance from your work place. Or, it could be that the home is rather small and your parents are living in it so you have to stay elsewhere on rent. You still can claim both, HRA Tax exemption and Home Loan Tax exemption – provided you are paying your rent. However, it is necessary you have some of your belongings at your home (the one you own) and you stay there on and off on during weekends and holidays.

Also Read: Submit Income Tax Proof to Employer – How, When and Why?

Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns.

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.

If you have some other question about HRA, ask us!

98 thoughts on “8 Questions about Tax Exemption on HRA

  1. Hi I have a question,
    My parents own a house in the city and we already have tenants there. Can I claim HRA for that house though I’m not living in it. ?

  2. Hi Sir,
    I have joint House loan, Land name of my father and we took Joint loan in name of my father, brother and me. How much % can I claim tax benefit. My father and brother not claiming any tax benefit . My father is pension holder.

    Please help on this.

    • You can only claim tax benefit on home loan if the house is owned or co-owned by you. As far as % is concerned you can claim in proportion you pay.

  3. dhanraj patil says:

    Hi amit,

    I have 2 flats in pune. so can I show both flats interest and principle amount for Income tax deduction ?
    also can I show both flat property tax receipts for income tax deductions.

    Also, from next month my company is moving far away from my flats so may be I have to shift in rented flat. so can I show
    HRA along with both flats principle and interest amounts.

  4. Hi Amit,
    Thank you for your elaborate explanation on the tax matters.
    I am salaried govt employee. I have two home loans and both the houses are on my name. i am living in one of the house and the other one is on rent and rent comes in my spouse account.

    1- Can i claim interest of both the home loans (1L for first house + 3.5 L for second house)

    2- My NPS contribution is 1L & 1 L is from my employer.
    Can i claim 50 K in 80CCD1 , 50K in 80CCD(1B) & employers 1 L in 80 CCD2

    i have short term capital gain from shares of 1137 rs.

    please advise which ITR form i should fill.

    • 1. Yes you can take tax benefit on both home loans. From FY 2017-18 onwards loss on house property has been limited to Rs 2 lakhs – rest you can carry forward as losses for next 7 years.

      2. You can split your contribution of NPS 50K each for 80CCD(1) and 80CCD(1B). You need not account for employer contribution as its not shown in Form 16 and hence tax free.

      As you have short term capital gains you need to fill ITR 2.

  5. Ashutosh Deshmukh says:

    Hi, I am Ashutosh, I have two home loans & both the homes are in Nasik, my parents are living in 1st home, my elder brother is living with his family in 2nd home, i am working in Pune. In this case can I get benefit of all two house loans & HRA

    1st Home Loan belongs to myself only (Parents are living in this house)
    2nd Home Loan I am applicant & my elder brother is co-applicant(Elder Brother living with his family in this house)
    I am working in Pune & living in rented house

  6. Hello Amit,

    I am about to pay around 3.5 lacs interest on home loan this financial year. My home is in different city than my work place and i will be getting around 1.5 lacs as rental income. Should i claim directly for 2 lacs (3.5 L-1.5L ) tax exemption for loss in property.
    or i have to add 1.5 lacs in my income and tax exemption of 2 lacs in house interest separately.

    • Both rental income and home loan interest would have to netted off and filed under “Income from Home Property”. Here is the calculation: Home Loan interest – 70% of rental income. So in your case Income from home = 70% of 1.5 – 3.5 = Rs (-)2.45 lakhs (loss)

  7. Hi Amit
    I paid rent to landlord son. Can I show his son pan no.

    • The rent should be paid to landlord. But as renter it might not be possible for you to verify who the property belongs to. You can quote son’s name but you’ll need a proof that this was on request of landlord.

  8. Hi, I have my own Flat in Pune But it is far away from my company(100Km), so I move to place which is near to company. In this case can I claim exemption HRA as well as for Home loan?

  9. Dr.B.Indira Reddy says:

    hello Amit,
    I am 50 yrs, i have one flat on my name but staying in rented house as my flat is small, now i want to construct an independent house and we will move into this house after completion, can i take construction loan and get tax benefit on this loan.
    Dr B Indira

  10. I have only one house which is in different city of my work place and i have housing loan for that, Can i claim the Housing loan interest completely for that house for FY 2017-18 or is it restricted to 2 lakhs ?

  11. Hi Amit…
    I am recieving a monthly salary of 40000 plus i am being provided a RFA(Rent Free Accomodation) by my employer to the amount of 3900 but i actually pay the rent Rs 7500. So can i claim any exemption in income tax.

    Thanks

  12. I am drawing Consolidated salary of 30,000 / pm and I have no HRA heads in this. I am paying 4500 / pm as rent. How can I get exemption when fining ITR?

  13. i have constructed 2 house by taking joint home loan. I am living in one house and renting out other.. how to calculate the Loss on property because interest paid is 3 times the rental received.

  14. how to claim for the “loss on property”.. interest paid for home loan is more than the rent received

  15. I took a home loan but my possession of flat is not completed. Can I claim home loan benefit under 80c

  16. Hi Amit, I submitted my Investment proof submission form on 30 January 2017, proofs given are LIC with total sum assured 10 lakhs. and other investment is of EPF which is directly deducted from salary. However, in the month of january 2017, income tax of 21000 was deducted from my salary. Kindly confirm whether i will get the deducted amount back as i have submitted premium receipts of LIC.

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