HRA (House Rent Allowance) forms a crucial component of your income.The CBDT (Central Board of Direct Taxes) has now made it mandatory for employees to submit PAN of the landlord to the employer if the annual rent exceeds Rs. 1,00,000 per annum(Previously it was Rs.1,80,000) and such an employee is claiming House rent exemption (HRA) under section 10 (13A) of Income Tax Act.
An Employee can claim exemption on his HRA under the Income Tax Act section 10 (13A) if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies.
The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee.
The exemption of HRA will be available up to the the minimum of the following three options:
1) Actual house rent allowance received from your employer
2) Actual house rent paid by you minus 10% of your basic salary
3) 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro
Only Delhi, Mumbai, Chennai and Kolkata constitutes Metro and eligible for 50 % deduction , Cities like Gurgaon, Ahmedabad, Bangalore, Hyderabad etc. are comes under Non Metro and 40% deduction will be allowed.
Calculating tax benefits on HRA:
XYZ earns a basic salary of Rs 30,000 per month and has rented an apartment in Mumbai for Rs 15,000 per month (he is eligible for 50 per cent of the basic pay for HRA exemption, as he resides in a metro). The actual HRA he receives is Rs 20,000. These values are considered to find out his HRA tax exemption:
i. Actual HRA allowance from the employer, i.e. Rs 20,000,
ii. fifty per cent of the basic salary as he resides in a metro (else 40per cent), i.e. Rs 15,000, and,
iii. The actual rent he pays for the house from which 10 per cent of his basic pay is deducted, i.e. Rs 15,000 – Rs 3,000 = Rs 12,000
The value considered for his actual HRA exemption will be the least value of the above figures. Hence, the taxable HRA amount for XYZ per month will be Rs 20,000- 12,000 (available HRA deduction) = Rs 8,000.
There are some circumstances when one might be eligible to get tax benefits or not which are given below:
1. Living in own House: If you are residing in your own house for which you have taken a home loan, then you can avail deductions for home loan but not HRA since you are not paying any rent.
2. House under Construction: If the house is not ready for occupation, HRA can be availed. The tax deductions for interest amount of EMI will be applicable only after possession of the house.
3. Own A house in Another City : In case your house is far from work place which makes it impossible to stay in or your house is in another city, you can avail tax benefits for home loan as well as HRA.
4. Home on rent: if you have rented your own house and living in rented place, you can avail tax benefits on both home loan and HRA. However the rent received will be counted in taxable income.
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