6 Important Factors That Determine Your HRA Exemption

6 Important Factors That Determine Your HRA Exemption

September 30, 2021 2 By mindmingles

There are several ways in which you can save income tax in India. One of them is through HRA Exemption. HRA, or house rent allowance, is a component of your salary that is given as the rent for accommodation. It can be claimed if you live in a rented house. There are some important factors that determine the HRA Exemption. What are these factors and how do they work? Read on to get the answers.

1. Understanding HRA

Before looking at the factors, let us understand what is understood by the term, HRA. Since housing is one of the basic necessities of life, the rent you pay towards the accommodation is allowed as a tax exemption in India. This is known as the house rent allowance and is deducted from your taxable income. The facility is available under Section 10-13A of the Indian Income Tax Act of 1961.

Factors determining HRA exemption 

Listed below are some important factors that impact the HRA exemption. Take a look:

  • HRA calculation:

    The HRA is calculated on three aspects and you are allowed to claim the lowest of the three. They are:
  • The fixed HRA you receive from your employer
  • 50% of your actual salary, if you rent a house in a metro city or 40% of your salary for any other location in India
  • The actual amount paid as rent, if it is less than 10% of your salary

Calculate these factors and see which is the lowest. You can then claim the amount as an IT exemption under Section 10-13A.

2. HRA when your rent is over INR 1 lakh

If your house rent is more than a lakh of rupees in a year, you can still claim the HRA exemption. However, to do this, you will have to submit a copy of your homeowner’s PAN card. This is an important necessity without which you cannot claim the HRA exemption on your taxable income.

3. HRA exemptions in the presence of a home loan

If you have a home loan that you are repaying but you still live in a rented house, you can claim the HRA. This commonly happens if your own house is in a different city and you need to relocate for professional reasons. In such a case you can claim both the tax deductions under Section 80C, Section 24(b), and Section 10 – 13A.

4. HRA exemption when living in parent’s house

If you live in a house that your parents own, you can claim an HRA then too. All you have to do is ask your parents to give you a rent receipt each month. You have to basically show that you are paying rent for living in the house that your parents own.

5. HRA Exemption for multiple family members

If you and your spouse are jointly paying the house rent, you can both claim an HRA Exemption. However, you will only be able to claim the tax benefit on the portion of the house rent that you pay. In other words, two family members cannot submit the same documents and claim tax deductions on the same amount paid as house rent.

6. HRA exemption under Section

At times, employers do not offer HRA to the employees. This commonly happens in smaller organisations. If you work in such an office where there is no HRA available, you can still claim an income tax exemption under Section 80GG. This is also applicable for self-employed people who do not get their salary from an employer. The amount you can claim under Section 80GG is the lowest of the following:

    1. INR 5000 per month
    2. 10% (or less) of the total salary paid as rent
    3. 25% of the total income (salary + investments) is paid as rent.

You will have to fill Form 10BA to get this deduction.

The last word

 As you can see, there are some very easy ways in which you can claim your HRA exemption. Keep all the factors mentioned above in mind and file your IT returns effectively. Also, note that the HRA exemptions under Section 10 -13A are only available for salaried people. So if you are self-employed, file for the HRA exemption under SEction 80GG. You will need to produce the rent agreement and your PAN details, along with the relevant forms when filing for the HRA expedition. Keep all the papers carefully and your job will be done in a quick and smooth manner if you have any further queries, you can click here to know more.