What is HRA or House Rent Allowance?
HRA or House Rent Allowance makes up one component of your salary to cover the costs of renting while you are employed by your organisation. This cost is built into your salary that your company credits and can be claimed as a tax exemption under Section 10(13A) of the Income Tax Act. Under most circumstances, one can claim up to 50% of their salary as HRA, if they reside in a metro city.
While HRA is a benefit that is mostly extended to salaried individuals, self-employed individuals may also be able to claim HRA benefits under Section 80GG of the Income Tax Act.
One should remember that the new Tax Regime does not offer any HRA exemptions, and should pick a tax regime that suits their financial standing and goals.
What are the things to Keep in Mind While Calculating HRA Exemptions
Here are certain conditions to bear in mind when you want to calculate your HRA exemption amount:
- If you stay in a metro city, you may be eligible to claim up to 50% of your base salary. If you live in a non-metro city, you can stand to claim up to 40% of your base salary.
- To be able to claim HRA, one of the main pre-requisites is that you reside in a rental property.
- You can claim an exemption if you live with your parents and pay them rent. To be able to do so, your parents should be the owners of the property and show the rent they receive as rental income in their tax returns.
- Some other factors that can help your HRA exemption eligibility are:
- Your pay slip should carry the HRA details included in your pay
- Your rental receipt should bear your name
Can one Claim Both HRA and Home Loan Tax Exemption?
These days, most people opt for a Home Loan to fund the purchase of their real estate property, primarily due to two different reasons. First, real estate has become quite expensive and it is nearly impossible for borrowers to afford to buy a home without external financial assistance. Secondly, Home Loan tax benefits allow borrowers to save a lot of money in the long run.
Under Section 80C of the Income Tax Act, one can claim tax exemptions up to a maximum of Rs.1.5 Lakh on payments made towards interest repayment and under Section 24(b) of the Income Tax Act, one can claim tax exemptions up to a maximum of Rs.2 Lakh on payments made towards interest repayment. Thus, a taxpayer can save up to Rs.3.5 Lakh per annum by way of a Home Loan. Further, partners can claim these tax exemptions separately, making it possible for them to save up to Rs.7 Lakh in taxes each year by way of a Home Loan.
The next question is can one claim HRA and Home Loan exemption together? The answer is yes. No section of the Income Tax Act states that one cannot claim both HRA and Home Loan interest exemption together. However, if the amount you are claiming as HRA is quite high, know that the income tax department will ask you to explain why you are staying in a rented apartment when you already have a home. In conclusion, it is possible to claim both HRA and Home Loan exemption but if you are doing so, expect to face some scrutiny from income tax officials and be prepared with your answers.
*Terms and conditions apply.
What are the Documents Required for HRA Exemption
To be able to claim your HRA exemption, you should have the following documents:
- Rental agreement (with details about the property, address, duration, etc. included)
- Rental receipt
- Owner’s PAN Card details, if the annual rent exceeds Rs.1 Lakh
- Revenue stamp along with the owner’s signature
*Terms and conditions apply.
Frequently Asked Questions
If you live in a metro city, you may be able to claim up to 50% of your base salary, and if your place of residence is a non-metro city, you stand the chance to claim up to 40% of your base salary.
Aside from this, you can claim the entire amount that is booked under HRA in your salary break-up.
You may, if you pay rent to your parents, and if your parents are the legal owners of the property. Your parents will be required to declare the rent they receive as rental income in their income tax returns.
You may be asked to submit your property owner’s PAN Card at the time of claiming exemptions if your annual rent payable exceeds Rs.1 Lakh.
Disclaimer
The information remains subject to change depending on the laws and government guidelines, applicable at the time being. However, Bajaj Housing Finance Limited (‘BHFL’) is under no obligation to update or keep the information current. Users are advised to seek independent legal and professional advice before acting on the basis of the information contained in the Website. Placing reliance on the aforementioned information shall always be the sole responsibility and decision of the User and the User shall assume the entire risk of any use made of this information.
In no event shall BHFL or the Bajaj Group, its employees, directors or any of its agents or any other party involved in creating, producing, or delivering this Website shall be liable for any direct, indirect, punitive, incidental, special, consequential damages (including lost revenues or profits, loss of business or loss of data) or any damages whatsoever connected to the User’s reliance on the aforementioned information.
