January 30, 2023
Swathi v prabhu

House Rent Allowance - Eligibility, Benefits & Deductions

More often than not, many individuals are required to move to different cities for work purposes. They are required to relocate, from one city to another, which is often considered a hassle. For this purpose, many organizations provide an allowance in the form of a house rent allowance, to make this shift easier.

House rent allowance is an important component for salaried individuals for accommodation purposes, via which, their taxes are reduced significantly. House rent allowance is mostly related to rented accommodation. If you don’t live in rented accommodation, this allowance is fully taxable.

This article lets us understand a bit more about the different aspects of House rent allowance.

What is HRA or house rent allowance?

HRA or house rent allowance, is a part of the salary structure, usually above the basic pay. It is a certain amount that an employer pays to an employee to compensate for rent paid to live in the place of employment. Under the income tax act, the deduction for house rent allowance is fully available under Section 10(13A). However, it may be partially or fully taxable.

The HRA calculation depends upon your salary, rent paid, HRA received, and the place of your employment and residence. Even self-employed individuals can claim HRA benefits.

Eligibility criteria to claim a tax deduction on HRA

  House rent allowance is usually deductible under section 10(13A) of the income tax act, 1961. But to claim a deduction, there are certain conditions that an individual has to fulfill. Some of the conditions are:-

1. The individual claiming the deduction should either be a self-employed or a salaried individual

2. The person must be living in a rented house. It is not possible to calculate HRA for your own house

3. Proper receipts for payment of rent should be produced. Such as house rent receipts, bank statements, etc. you cannot claim HRA deductions without sufficient evidence even if your employer provides a house rent allowance.

Tax benefits of House rent allowance

 Some benefits of house rent allowance which help individuals are:-

1. One of the major benefits of claiming a house rent allowance rebate is the reduction in taxable income.

2. It is even possible to claim a deduction on house rent allowance, whilst living with your parents, as long as you produce proof of paying rent

3. You can claim HRA tax benefits even while paying EMI on a home loan as long as the house is not located in the city of employment/ residence. In case you own a house in the same city as employment and living, you will need to produce a valid explanation as to why you cannot live there to claim the HRA exemption.

How is tax exemption from HRA calculated?

 The deduction shall be the least of the following amounts:-

1. Actual HRA received

2. 50% of (basic salary + dearness allowance) for those living in metro cities

3. 40% of (basic salary + dearness allowance) for those living in non-metro cities

4. Actual rent paid should be less than 10% of the basic salary + dearness allowance

Important points to remember while claiming an HRA deduction

1. You have to be living in a rented premises to claim an HRA deduction. You will be ineligible to claim the deduction if you’re not living in rented premises, even if your employer is paying an HRA allowance

2. The entire HRA paid to you cannot be claimed as an exemption. The lowest annual rent is paid minus 10% of the basic salary, HRA is paid by the employer and 40%/50% of salary depending on where you stay can only be claimed.

3. For HRA calculation purposes, only Mumbai, Delhi, Chennai, and Kolkata are considered metro cities. All others are non-metro cities.

4. You can claim an HRA deduction even if you are staying with your parents, as long as you produce proof of rent payment, such as rental receipts or bank transfers. However, your parents will need to show this as income while filing their returns.

5. Rent paid to a spouse is not eligible for an HRA deduction.

6. If the annual rent paid exceeds ₹1, 00,000, then the landlord’s PAN will be required to claim HRA exemption. If they do not have a PAN, a signed declaration will be required.


HRA comes under which section?

HRA deduction can be claimed under Section 10(13A) for salaried individuals and Section 80GG for self-employed individuals or salaried people who do not get HRA.

Is HRA calculated monthly or yearly?

HRA is computed annually

Is HRA part of 80C?

HRA exemptions can be claied under Section 10(13A) or Section 80GG.


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