Living in a rented house? Your House Rent Allowance (HRA) can significantly reduce your tax burden. Here is how it works.
How HRA Exemption is Calculated
The Income Tax Department allows the minimum of the following three as an exemption:
- Actual HRA received from employer.
- Actual rent paid minus 10% of Basic Salary + DA.
- 50% of Basic Salary (Metro cities: Mumbai, Delhi, Kolkata, Chennai) OR 40% (Non-metro).
Documents Required
To claim HRA, you need:
- Rent receipts (Monthly).
- Rental Agreement.
- Landlord's PAN card (if rent exceeds ₹1 Lakh/year).
Paying Rent to Parents?
Yes, you can pay rent to your parents and claim HRA, provided they own the house and show this rent as income in their tax returns.
HRA vs Home Loan Tax Benefit
You can claim both HRA exemption and home loan interest deduction (Section 24b) simultaneously if you live in a rented house in a different city from where your owned property is located.
Documents for Audit
Always keep your rent agreement and monthly rent receipts safe. If you pay rent exceeding ₹1 Lakh annually, quoting the landlord's PAN is mandatory to claim the exemption.
HRA Exemption in New Tax Regime
It is important to note that the HRA exemption is NOT available under the New Tax Regime (Section 115BAC). If you opt for the new regime, you cannot claim tax deductions on rent paid. Compare your tax liability under both regimes before filing your return.
Conclusion
HRA is one of the most effective ways to save tax for salaried individuals living in rented accommodations. Ensure you have valid rent receipts and a rental agreement to substantiate your claim. If you are eligible, claiming HRA can significantly increase your take-home salary.