HRA is a special allowance specifically granted to an employee by his employer towards payment of rent for residence of the employee. HRA gets special treatment in income tax laws, and is exempt from income tax to a certain extent. This is an allowance paid to the employee to defray the housing rent expense. Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it. That’s why we get income tax benefit when we take a home loan to buy a house. Similarly, there are income tax benefits on the House Rent Allowance (HRA) as well. The tax benefit on HRA is available under section 10 (13A) of the IT Act.
HRA Exemption Calculator
We have created a calculator in excel for easy calculation. The download link is given at the end of the article.
HRA granted to an employee is exempt to the extent of least of the following :
|Metro Cities (i.e. Delhi, Kolkata, Mumbai, Chennai)||Other Cities|
|1) HRA actually received.||1) HRA actually received.|
|2) Rent paid-10% of salary for the relevant period||2) Rent paid-10% of salary for the relevant period|
|3) 50% of salary for the relevant period||3) 50% of salary for the relevant period|
- Exemption is not available to an assessee who lives in his own house, or in a house for which he has not incurred the expenditure of rent.
- Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment and commission as a fixed percentage of turnover.
- Relevant period means the period during which the said accommodation was occupied by the assessee during the previous year.
Who can claim House Rent Allowance exemption
There are certain conditions that should be met for claiming IT benefit on HRA. You can claim HRA exemption towards the rent paid by you, if
- You receive HRA as part of your salary
- You pay the rent
- You stay in the rented house for which you pay the rent
- You do not own the house for which you are paying the rent
For example, you are paying the rent for a house in which your parents stay, but you if you stay in a different house, you can not claim the exemption . You should be an occupant of the house.
Documents needed to claim HRA exemption
If the HRA you are claiming is less than 3,000 per month, no proof is needed. But if the amount you are claiming is more than3,000 per month, you would need the following:
- Rent receipts
- Rental agreement
- You can claim exemption for the rent paid to your parents, provided you actually pay the rent. You should get rent receipts for the same.
- Your parents would need to declare this income in their IT returns.
- You can not claim rent paid to your spouse. Either you or your spouse can claim HRA exemption – not both.