8 Questions about Tax Exemption on HRA

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

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

How to calculate tax exemption for HRA?

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

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

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.

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.

Also Read: How to Generate Rent Receipts Online?

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.

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.

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100 thoughts on “8 Questions about Tax Exemption on HRA”

1. sanjeev says:

Can I take rebate on interest paid on home loan during Project under construction as Project will be completed next year

• No as per income tx rules you can tax benefit only after completion of house.