How to Claim House Rent Allowance Exemption in Income Tax

House Rent Allowance (HRA) is a common component of the salary package offered by employers to their employees. It is provided to help employees meet their rental expenses and alleviate the burden of accommodation costs. The good news is that the HRA received can also lead to a tax benefit for the recipient. In this blog, we will understand the steps on how to claim House Rent Allowance exemption in your Income Tax return, ensuring you make the most of this tax-saving opportunity.

Understanding House Rent Allowance (HRA):

HRA is a part of an employee's salary that is specifically meant to cover their housing expenses. It is generally offered to salaried individuals and is taxable under the Income Tax Act. However, under certain conditions, a portion of the HRA can be exempt from taxation, providing tax relief to eligible employees.

Eligibility Criteria for HRA Exemption:

To claim HRA exemption, you must meet the following criteria:

Salaried Individual:

Only salaried individuals can claim HRA exemption. Self-employed individuals or those not receiving HRA as a part of their salary cannot avail of this benefit.

HRA Component in Salary:

You must be receiving HRA as a component of your salary package from your employer.

Rental Payments:

You must be paying rent for the accommodation you reside in. HRA exemption cannot be claimed if you do not pay rent.

Residential Status:

You must be a resident individual or an ordinary resident to claim HRA exemption.

Calculating HRA Exemption:

To calculate the HRA exemption amount, the following steps are involved:

Actual HRA Received:

Determine the actual HRA amount received from your employer during the relevant financial year.

Rent Paid:

Calculate the total rent paid for the accommodation where you reside. Ensure you have proper rent receipts as evidence.

HRA Received - (Rent Paid - 10% of Salary):

The least of the following three amounts is eligible for exemption:

Actual HRA received from the employer

Rent paid minus 10% of basic salary (including Dearness Allowance, if applicable)

50% of basic salary (including Dearness Allowance, if residing in a metro city) or 40% of basic salary for non-metro cities

Documentary Evidence:

To substantiate your claim for HRA exemption, you should maintain the following documents:

Rent Receipts:

Collect rent receipts from your landlord as proof of the rent paid. These receipts should contain essential details like the landlord's name, rented property address, rent amount, and the period for which the rent is paid.

Rent Agreement:

If your annual rent exceeds ₹1,00,000, it is advisable to have a rent agreement in place. This legal document helps establish the tenancy agreement and is useful for claiming HRA exemption.

Claiming HRA Exemption in Income Tax Return:

To claim HRA exemption, you need to follow these steps while filing your Income Tax Return (ITR):

Form 16:

Ensure you receive Form 16 from your employer, which provides details of your salary, taxes deducted, and HRA received during the financial year.

Section 10(13A):

While filing your ITR, report the exempted HRA amount under Section 10(13A) in the appropriate section of the form.

Form 12BB:

If your annual HRA exceeds ₹1,00,000, you must submit Form 12BB to your employer with details of the rent paid and the landlord's PAN (if available).

Conclusion:

Claiming House Rent Allowance (HRA) exemption in your Income Tax return can significantly reduce your tax liability, making it an essential aspect of tax planning for salaried individuals. By understanding the eligibility criteria, calculating the exemption amount accurately, and maintaining proper documentation, you can confidently claim the HRA benefit while filing your Income Tax Return. Remember to stay updated with the latest tax laws and seek professional advice if needed to ensure compliance with the Income Tax regulations. Utilizing this tax-saving opportunity will not only provide financial relief but also contribute to a smoother tax-filing process.