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House Rent Allowance - Tax Exemption - Simplified

Writer's picture: MyRupayaMyRupaya

Many salaried workers receive HRA, or House Rent Allowance, which is included in their income. However, did you know that if you live in a rental home, you may be able to deduct HRA from your taxes? 


If you are salaried or self-employed, you can claim HRA exemption under Section 80GG. So, first, let's define House Rent Allowance, how to calculate it, and some often asked issues. HRA stands for House Rent Allowance. Your company will provide you a House Rent Allowance as a stipend for your rented apartment. Even if your company does not pay you HRA or if you are self-employed, you can claim this income tax deduction. However, in order to be excluded from HRA tax deductions, you must live in rental housing. Someone who owns a home and receives HRA from their employer is not eligible to claim tax deductions under Section 80GG.


What Factors Go Into Determining a House Rent Allowance? The amount of House Rent Allowance is decided by a number of criteria, including where you live and your pay. If you live in a metropolitan area, your HRA will be equal to half of your basic pay. Your HRA should be equal to 40% of your base income in any other city. 


The amount you are paid is made up of a combination of your base wage, dearness allowance, and other benefits. If you do not receive any dearness allowances or commissions, the HRA you should receive is in the range of 40% to 50%.


Calculation of HRA The following factors can be used to calculate your HRA: Ten percent of your base earnings minus the actual rent paid 1. The amount of HRA you were granted. 2. 50% of your starting pay (for a metropolitan city) The HRA is the smallest of these three figures that you can claim as a tax deduction. How Do You Work Out Your HRA? Let's consider the case of Abhijeet Saxena, a Jaipur-based salaried individual. He rents an apartment and pays a monthly rent of Rs. 5,000, totaling Rs. 1.2 lakhs each year. His monthly earnings are as follows:



Basic Salary

15,000

HRA

6,500

Conveyance

1000

Special Allowance

​1500

​Medical

675

Leave Travel Allowance (LTA)

2500

Total

​27,125



Every month, a professional tax of Rs. 200 and a Provident Fund of Rs. 2000 are withheld from his pay.


Let's compute Abhijeet's HRA, which he may deduct from his income, using the three variables we covered earlier:


1. Actual yearly rent minus 10% of your basic wage = (Rs. 5,000 x 12) - Rs. 18,000 = Rs. 42,000

2. Annual HRA paid by the employer = Rs. 6,500 multiplied by 12 = Rs. 78,000


3. 50% of your basic salary (on a yearly basis) = Rs. 90,000


The HRA deduction that may be claimed for tax exemption, which in Abhijeets' instance is Rs. 42,000, is the smallest of the three figures.



Here are some things to remember about the HRA tax exemption: claim. You cannot claim HRA tax exemption if you pay rent to your spouse. 1. HRA income tax exemption is available even if you have taken out a house loan. 2. If you live with your parents and pay rent to them and receive a receipt for it, you can claim House Rent Allowance. 3. If your yearly rent exceeds Rs. 1 lakh, you must submit your landlord's PAN data. 4. In the case of an NRI landlord, a 30 percent TDS (Tax Deducted at Source) must be deducted from the rent before it is paid.

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