HRA Benefit on Payment of House Rent_banner_WC


HRA Benefit on Payment of House Rent_WC

6 min 03 Apr 2023
  • Who can Avail HRA Tax Benefit?
  • How Much Deduction can a Borrower Claim on Rent?
  • Is it Possible to Claim both HRA and Home Loan Tax Benefits?

These days, most people find themselves moving to different cities in search of work. Moving to another city is no easy task. It is not only difficult to leave one’s roots, but one must also arrange a substantial amount to facilitate the move from one city to another. Therefore, employers give HRA. What is HRA in salary? HRA refers to House Rent Allowance. The House Rent Allowance is a component of the salary, which is received over and above the basic salary, that employees use to take care of their accommodation needs. The HRA is important as it not only provides the financial cushion that people need to move to another city or simply to start living on their own, but it also comes with HRA tax benefits.  

HRA exemption is covered under Section 10(13A) of the Income Tax Act. However, taxpayers must know that the HRA is not always fully exempt from tax deductions. HRA Tax deduction depends on several factors, such as the salary of the taxpayer, the HRA they are receiving, the part of it that is going towards rent payment, the city in which they live, etc. Further, not many taxpayers know that the house rent allowance under Section 10(13A) can be claimed by both salaried as well as self-employed individuals.    

In this article, we discuss who can claim HRA tax benefits, how much HRA can be claimed, and the HRA tax exemption on house rent that all taxpayers should be aware of.  

Who can Avail HRA Tax Benefit? 

Both salaried and self-employed individuals can claim HRA. However, they must meet certain conditions to be eligible for these exemptions. To start with, whether salaried or self-employed, the person must be living in a rented house to be able to claim HRA. One cannot claim HRA if one is staying in their own house. Further, at the time of filing taxes, the taxpayer must be able to provide a rent receipt or other valid documents to be able to claim this deduction.  

Also Read: Home Loan Insurance - All You Need to Know About It 

How much HRA can be Claimed on Rent by the Borrower? 

To be able to answer this question, one must first understand how to calculate HRA. While doing HRA calculation, the deduction that a taxpayer can claim is the lowest of the following: 

- The HRA that is mentioned in your job offer letter and that your employer is paying you.  

- The actual rent that you are paying minus 10% of your basic pay. 

- In the case of employees living in a metropolitan city, such as Mumbai, Delhi, Bangalore or Kolkata, 50% of the salaried individual’s basic salary plus the dearness allowance. In the case of employees living in a non-metro city, 40% of the basic salary plus dearness allowance.  

Also Read: 10 Useful Income Tax Deductions 

How Much TDS is Exempted on Rental income?

According to the Finance Act, 2017, one must pay TDS on rent under Section 194-IB if their total gross income exceeds the monetary limit specified under Section 44AB of the Income Tax Act. If a borrower is paying more than Rs.50,000 in the form of rental income and their total income exceeds the upper limit defined under Section 44AB, tax is to be deducted at 5% or 3.75% from the rental income going to the landlord. In this case, to claim a tax deduction, the taxpayer must provide the PAN card of both the tenant as well as the homeowner or landlord. A taxpayer can claim tax exemption on rental income in this case by downloading the TDS certificate that is a part of Form 16 from TRACES and issuing this to their landlord within 15 days of the date of providing the challan-cum-statement mentioned in Form 26QC. However, if the landlord is not a resident Indian citizen but an NRI, the tax deductions applicable are those covered under Section 195 of the Income Tax Act.  

Is it Possible to Claim both HRA and Home Loan Tax Benefits?

These days, most borrowers apply for Home Loans because these loans come with Home Loan tax benefits with the help of which borrowers can save a lot of money in the long run. The question is can one claim both house rent allowance and Home Loan tax benefits simultaneously? The answer is yes.  

In the case of Home Loans, a borrower can claim tax deductions up to a maximum of Rs.1.5 Lakh on payments made towards principal repayment under Section 80C of the Income Tax Act and up to a maximum of Rs.2 Lakh under Section 24(b) of the Income Tax Act on payments made towards interest repayment. Over and above this, first-time homebuyers can claim an additional Rs.50,000 in tax deductions, provided they meet certain conditions.  

A taxpayer can claim HRA tax deductions as well as claim tax benefits on Home Loans. However, to be able to do so, they must have a valid answer to why are they living in a rented apartment when they have already invested in a property and have a home in their name. If they are able to justify this, they can claim both tax deductions.  

Now that we know how to calculate HRA, TDS on rent limit and Home Loan tax benefits, let us answer some of the basic questions that people have on this topic.  

Also Read: Section 80 EE: Claim Deductions on the Home Loan Interest Paid 



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HRA Benefit on Payment of House Rent_faq_WC

HRA Benefit on Payment of House Rent: FAQs

If you are claiming tax benefits under the new tax regime, know that you won’t be able to claim 70 different deductions and tax exemptions, including HRA tax exemption. 

To be able to claim tax deductions available on HRA, it is mandatory that a taxpayer provides details of their landlord. If they do not have their landlord’s PAN, they cannot claim HRA. 

Yes, a taxpayer can claim a tax deduction on HRA even if they are living with their parents. However, this is possible only when the parents own the home and show the rental income they are drawing from you as part of their total income. 

Ideally, borrowers must submit all rent receipts to their office. However, even if you forgot to do so, you can still claim HRA tax deductions while filing your taxes at the end of the year. While filing your taxes, use an income tax calculator and change your taxable income to include HRA. Once you do this, the income tax calculator will automatically move you to a lower income tax slab. If you had paid taxes in excess, you will be able to claim a refund.

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