Income Tax Taxation

How to Claim HRA – House Rent Allowances

House Rent Allowances

What is HRA – House Rent Allowances?

The HRA is claimed by the Salaried individuals who live in a rented house. This is allowed as a deduction to an extent allowed pursuant to the Income-tax Act[1], and hence thereby lower are the taxes to be paid by the taxpayer. The employer provides for the house rent allowances for the expenses related to rented accommodation. However, in cases you don’t live in a rented house, this allowance is fully taxable.

The Tax Exemption from HRA:

The deduction allowed with respect to the HRA is the least of the following amounts:

  • The actual HRA received by the employee; (Suppose Rs 15,000/-)
  • 50% of [basic salary + DA]                                   (Suppose comes out to be Rs  50,000/-)
Note: In case you are living in metro cities then it is 40% of (basic + DA) or
  • The actual rent paid less 10% of basic salary + DA (Suppose comes out to be Rs 18,000/-)

Then in the above case, the allowable HRA shall be Rs 15,000/-.

Cases in which Rent exceeds Rs 1, 00,000/- annually:

In case you are living in the house on rent and the rent for the same is more than of Rs 1, 00,000/- annually in such cases the renter is required to obtain the landlord’s PAN and same is required to be mentioned while claiming the deduction for the HRA.  

What if your landlord is an NRI?

In that case, also the renter should not forget to pay the rent only after deducting the TDS of 30%, otherwise, you lose out on the HRA exemption.

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What if the Landlord does not have PAN?

In case your Landlord does not have a PAN, then, in that case, a declaration refers to circular no. 8/2013 dated 10 October 2013 is required to be given by the landlord.

Claim Deduction on Home Loan Interest and HRA as well:

Usually, it’s a myth that if the interest on own House Rent Allowances are claimed as deduction them one cannot claim the HRA, however, this is not true one can claim both the things simultaneously and it has no bearing towards the home loan interest deduction.

Also, Read: All About Deduction Under Section 80GG.

In Cases the Employees is not Getting any HRA:

In the case where the employee is living in a rented House Rent Allowances and paying rent for residential accommodation (be it furnished or unfurnished), but do not receive HRA from his or her employer, in such cases also still one can claim deduction under Section 80GG.

However certain conditions must be fulfilled to claim this deduction:

  • one should be a salaried person or self-employed
  • The HRA must not have been received at any time during the year for which you are claiming 80GG
  • Any of the following should not own any residential accommodation at the place where you currently reside, perform duties of the office, or employment or carry on business or profession.
  • You or
  • Your spouse or
  • Your minor child or
  • HUF of which you are a member
Note -that in case you have your own any residential property at any place other than the place mentioned above, you are not allowed to claim the benefit of that property as that other property would be deemed to be let out in order to claim the deduction under section 80GG.

 How to Claim Deduction under Section 80GG?

The deduction under 80GG can be claimed under 80 GG will be least of the following:

  • Rs 5,000 per month;
  • 25% of adjusted total income i.e. adjusted income shall mean and include the total Income less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG) ;
  • Actual rent less 10% of adjusted total income.
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Can a person living with Relative/Parent Claim Deduction of HRA under Deduction?

Let’s understand with an Illustration:

Mrs. X works at a PQR company. The PQR company pays HRA to all its employees provides. But she is not living out of rented place but with her parents? Can she still claim HRA as a deduction?

Mrs. X can claim the deduction of such HRA if following things happen:

  • She pays rent to her parents and
  • She enters into a rental agreement with her parents
  • Monthly transfer of money which can be produced as evidence for the same.
  • Most importantly she must thereafter claim the allowance provided to her.

However, this makes Mrs. X parents show their extra house rental income on which tax shall be charged.

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Also, Read: Read CBDT Clarifications for ITR Filing of AY 2019-2020.

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