Things To Know About HRA - Home Loan Blog - Tata Capital

13 Things to Know About HRA

Mar 07, 2017

House rent allowance (HRA) is paid by the employers to enable you to meet your rental expenses. This amount received is taxable as your income. However, Section 10 (13A) of the Income Tax (IT) Act, 1961 provides exemption on the HRA when you satisfy certain conditions.

Here are 13 things you should know about HRA to maximize the benefits.

1. You must receive HRA from your employer. If the HRA is not included in your salary, you cannot claim the exemption.

2. To claim this exemption you must live in a rented property. If you reside in a self-occupied property, you do not receive the benefit. However, if you apply for a home loan to purchase your house, you can claim tax benefits for such loans.

3. You cannot claim exemption on the entire HRA amount. The rule stipulates an exemption on the lowest amount of the following.

  • Actual rent received
  • The amount paid as rent that exceeds 10% of your basic salary
  • 50% of basic salary if you live in a metro city and 40% if you reside in other cities

4. When you claim the HRA exemption, you must submit a rent payment proof, such as rental receipts issued by the landlord. However, if your rent is less than INR 3,000 per month, you may claim exemption without submitting any proof.

5. If you pay rent to your parents for living in a property registered in their name, you are allowed to claim the HRA exemption. In most cases, you are not allowed to claim the exemption if you pay rent on a property owned by your spouse.

6. If the total annual rent exceeds INR 1 lakh, you will need to submit a copy of your landlord's Permanent Account Number (PAN) card to your employer.

7. In case you do not submit the proof of rent to your employer, you may claim the same while filing your returns as a tax refund. However, you may need to submit the supporting proof to the Income Tax Officer.

8. If your landlord does not have a PAN card, you must procure a self-declaration from him.

9. You may be able to claim the HRA exemption as well as the home loan tax benefits if you own a home in one city and reside in a rental house in another city.

10. If you and your spouse share the rent paid, both of you are allowed to claim the HRA exemption. However, each of you must pay through separate bank accounts. Furthermore, the lease agreement must clearly specify this arrangement to avoid any issues.

11. If you reside in a rented house for only some part of the financial year, the HRA exemption is limited only for that period. However, you may still claim the home loan benefits when you move into your own residence.

12. The HRA exemption is available even if you live as a paying guest (PG). However, this benefit is limited to the rent paid and will exclude other costs like food.

13. Although rent payments in cash are allowed, paying through a bank account is advisable.

The HRA tax exemption is beneficial in reducing your tax liability. However, you must clearly understand all the conditions you must satisfy before claiming such exemption. Using expert advice for tax planning may be beneficial to avoid complications in the long run.