Understanding HRA Benefit On Payment Of House Rent ?

20^th Mar 2025...

Are you curious about how House Rent Allowance (HRA) can impact your income tax and savings? This guide breaks down everything you need to know, from HRA exemption in income tax to calculating HRA and understanding the limits.

Think of HRA exemption as a special tax perk. When you earn money, the government says, “If you allocate a portion of your earnings to cover your house rent expenses, we will exempt that portion from taxation.” It's like a win-win – you save on taxes and have more to put towards your living expenses. So, let's dive into this financial hack that can help you maximise your income tax savings.

Who can avail HRA Tax benefit?

Now, let's talk about who can enjoy the HRA tax benefit. If you're a salaried individual and you pay rent for your accommodation, you're in luck. Typically, to avail of the HRA tax benefit, you must be living in a rented house and receiving HRA as a part of your salary package. This benefit isn't available for those who own their homes or don't receive HRA from their employers.

Also Read: HRA Benefit On Payment Of House Rent

The details of maximum HRA exemption

Now, there's a limit to this tax-saving benefit. The maximum HRA exemption is the lowest of these three:

The actual HRA you receive from your employer.
The rent you pay is minus 10% of your basic salary.
50% of your basic salary in case you are living in a metro city.
40% of your basic salary if you're not in a metro city.

Let's say your actual HRA is Rs. 20,000, and you pay Rs.15,000 as rent. Your basic salary is Rs.50,000. So, here's how you calculate it:
- 10% of your basic salary: Rs.50,000 * 10% = Rs.5,000.
- 50% of your basic salary: Rs.50,000 * 50% = Rs.25,000.

In this case, the lowest amount is Rs.5,000 (10% of your basic salary). So, your HRA exemption limit is up to Rs.5,000.

How to calculate HRA

The calculation of HRA is determined by multiple factors. Factors influencing HRA are:

Salary
Rent paid
HRA receivable by the employee
City of residence of employee

Calculating HRA exemption can be done in a few simple steps:

Find out how much HRA you get from your employer.
Calculate the rent you pay for your accommodation.
Determine 10% of your basic salary.
Calculate 50% (or 40% for non-metro cities) of your basic salary.
Finally, compare these three numbers and pick the lowest one as your HRA exemption.

How to claim HRA in ITR

Claiming HRA (House Rent Allowance) in your income tax returns (ITR) is a straightforward process. Here's how you can do it:

1. Collect the Required Documents

Ensure you have all the necessary documents, such as rent receipts, rental agreement, and salary slips, which show the HRA component.

2. Calculate HRA Exemption

Use the method we discussed earlier to calculate your HRA exemption. Compare the actual HRA received to the calculated exemption limit.

3. Fill Out ITR Form

While filling out your ITR form, you'll find a section for claiming deductions under Section 10(13A) for HRA. Provide details of your salary, including the HRA received.

4. Declare Exempted HRA

In the ITR form, you'll be asked to declare the exempted HRA amount. This is the lower of the actual HRA received and the calculated exemption limit.

5. File Your ITR

Complete the ITR form as per the instructions provided and submit it online on the Income Tax Department's official website or through other authorised channels.

6. Keep Documents as Proof

Retain copies of your rent receipts, rental agreement, and salary slips for at least 7 years. These documents serve as proof in case the tax department asks for verification.

7. Verification and Assessment

The Income Tax Department may assess your ITR and request additional verification documentation.

How the new Indian tax regime impacts HRA

Recently, the Indian tax regime has seen some changes that impact HRA. With the new tax regime's introduction, taxpayers can choose between the old tax regime with deductions like HRA or the new regime with reduced tax rates but no deductions. If you opt for the new regime, you won't be able to claim HRA exemption along with other deductions like Section 80C, 80D, etc. It's essential to evaluate each of the regimes to make smart decisions. Then you can find out what works best for your financial situation and tax-saving goals.

Understanding HRA, its tax benefits, and the impact of tax reforms is crucial for efficient tax planning and financial management. Make sure you stay updated with the latest tax regulations. This will help you optimise your tax-saving strategies.

Boosting your savings with a savings account

A savings account serves as a secure repository for your finances, akin to a modern-day piggy bank with the added convenience of a financial institution. It allows you to deposit and withdraw funds at your convenience, with the bank rewarding you through interest on your balance.

Now, envision a savings account that takes this convenience a step further – the Kotak811 Zero Balance Savings Account. This account is not your typical offering; it's a game-changer. With Kotak811 digital savings account, you're liberated from the need to maintain a minimum balance, providing you with unparalleled flexibility.

What sets Kotak811 apart is its impressive interest rates, which can go as high as 7% through its ActivMoney facility, rivalling the returns of Fixed Deposits (FDs). It's a digital savings account tailored to the modern world, where convenience and flexibility reign supreme. Bid farewell to balance requirements and embrace the future of hassle-free banking with Kotak811.

In a nutshell

To put it briefly, understanding the concept of HRA exemption in income tax can lead to significant savings by lowering your taxable income. Familiarity with HRA calculation and the relevant exemption limit is essential for leveraging HRA benefits. Additionally, when it comes to savings, Kotak811 Digital Savings Account offers a hassle-free and secure way to manage your finances. Keep these financial tips in mind for a more promising financial future!

FAQs

1. What is the meaning of house allowance?

House allowance in simple words means extra money that your employer gives you along with your salary to help you pay for your home or rent. It is added to your pay so that managing housing costs becomes easier.

2. What is the meaning of HRA allowance?

HRA allowance meaning is House Rent Allowance, which is the part of your salary that employers give to help you cover rental expenses. It is mainly offered to employees who live in rented accommodation and can also provide tax benefits under certain conditions as per income tax rules.

3. How can I claim an HRA exemption?

To claim HRA exemption, you must be a salaried employee receiving House Rent Allowance and actually paying rent. Submit rent receipts, landlord’s PAN (if rent exceeds ₹1 lakh annually), and a declaration to your employer. It will be reflected in your Form 16 and income tax return.

4. What is the new rule of HRA exemption?

From April 2023, under the new tax regime, HRA exemption is not available. It can only be claimed under the old tax regime. So, employees must opt for the old regime while filing or declaring taxes to benefit from HRA deduction.

5. When can we claim HRA exemption?

You can claim HRA exemption if you are a salaried employee, HRA is part of your salary, and you actually pay rent for a residential property. Valid rent receipts and landlord details must be submitted. The exemption is available only under the old tax regime.

6. When can't HRA be claimed?

HRA cannot be claimed if you live in your own house, do not pay rent, or your salary does not include an HRA component. It is also not available under the new tax regime.

7. What is the maximum HRA amount you can claim?

The maximum exemption is the least of three values:

Actual HRA received.
50% of salary (basic + DA) for metro cities, or 40% for non-metros.
Rent paid minus 10% of salary (basic + DA).

8. Can a self-employed person claim HRA?

No, HRA is only for salaried employees. Self-employed individuals cannot claim HRA exemption but may use Section 80GG to claim deduction for rent paid, subject to specified limits.

9. Can husband and wife both claim HRA?

Yes, both spouses can claim HRA separately if they are salaried and receive HRA. If they live in the same rented house, each can claim their share of the rent in proportion to what they pay. However, the same rent amount cannot be claimed twice, and each must provide valid proof like receipts and landlord details.

10. What is an HRA certificate?

An HRA certificate is the documentation required to claim exemption. It includes rent receipts, rental agreement, proof of rent payment, and landlord details. If annual rent exceeds ₹1 lakh, the landlord’s PAN is also mandatory.