House Rent Allowance HRA Section 10 (13A): HRA that stands for House Rent Allowance is a grant paid by employers to employees to cover their house rent. HRA is a good means for waged professionals for saving tax and that is why; almost every company includes it as a part of their salary. Such allowance is chargeable for the individual. However, under Section 10 (13A) of the Income Tax Act, there is some exemption to House Rent Allowance. Whether state or central management or private, for all employees, the deduction is acceptable. According to this section, self-employed individuals are not allowed to get any deduction. Readout below to know more about tax exemption, documents required to claim HRA deduction, and much more.
- How Much HRA Tax Can Be Deducted?How Much HRA Tax Can Be Deducted?
- What Conditions Are Required To Claim HRA Deduction?
- What Documents Employees Have To Submit To Claim HRA Deduction?
- How to Claim House Rent Allowance in Income Tax Return?
- Can Employee Gets HRA Exemption If Not Claimed On Time?
How Much HRA Tax Can Be Deducted?
While calculating the House Rent Allowance, salary is taken on a due basis. It includes basic salary, Dearness Allowance (DA, if it enters into retirement benefits), and fixed percentage commission received on the basis of sales turnover accomplished by the employee. The salary is taken for the period during which HRA is received.
- The tax deduction for House Rent Allowance is the least of the exact HRA received.
- 40% of the income for the non-metro cities while it’s 50% if the rental apartment is in Mumbai, Kolkata, Delhi, or Chennai like Metro City.
- Excess of rent paid less than 10% of the annual salary.
What Conditions Are Required To Claim HRA Deduction?
The various sections of the Income Tax Act support paid individuals and professionals to make their residential house expenditures affordable. House Rent Allowance is one of the vital sub-components of the salary of both private as well as public sector organizations. HRA is given by the employer to an employee when he/she stays in a rental house. However, there are some conditions that must get met to claim exemption:
- The deduction for House Rent Allowance is permissible only when an employee pays rent for residence. No deduction is allowable when an employee pays no rent for any certain period. The income tax officer can enquire employee for rent receipts. While filing Income Tax Return, there is no requirement to attach any document.
- The deduction is calculated on a monthly basis if there is any change from the city of residence (from metro to non-metro), amount of salary, HRA, or rent.
- If the employee does not receive any exemption from the employer, then no deduction is acceptable as per section 10. However, one can avail an HRA tax deduction for lease paid under Section 80GG. Under this section, one can claim the minimum of rent paid in excess of 10% of the annual income, 25% of the total income, and Rs 5000 per month.
- HRA is permissible even if an employee is paying rent to any family member. Though there is no lawful prerequisite still is advisable to pay rental charges. The employee gets about a 30% deduction. However, one cannot pay rent to their spouse as in regards to relationship, they are supposed to take the housing together. These transactions can let inspection by the income tax department. Even if one is leasing the house from their parents, it is essential to keep documentary evidence stating financial transactions regarding tenancy.
- If the employee holds a house property but resides in a rented property, then also he/she can avail the benefit of the deduction for the principal repayment, interest paid, and HRA.
- An employee who seeks tax exclusions under Section 80GG cannot enjoy any benefit associated to self-occupied property assets they hold.
- HRA exemption and home loan interest exemption as per Section 24B and payment of housing loan under Section 80C can be appealed simultaneously.
- No deduction is permissible for the maintenance charges if an employee pays maintenance charges distinctly.
What Documents Employees Have To Submit To Claim HRA Deduction?
- An employee should submit Form No. 12BB for claiming HRA exemption to the employer. If the total rent paid during a certain year surpasses Rs 1 lakh then an employee should submit the PAN of the landlord in this form. In the case of more than one property owner, an employee should submit the details of all landholders.
- If the owner does not have a PAN, then an employee should submit a declaration to this consequence from the landowner including the owner’s name and address to the employer.
- If the HRA is up to Rs. 3000 per month, then there is no need for the employee to submit the rental receipt to the employer.
How to Claim House Rent Allowance in Income Tax Return?
- Filing ITR-1: After all deductions in “Income from Pension/ Salary, one has to input taxable salary.
- Filing ITR- 2, 2A, 3, 4, 4S: In any of these Income Tax Return forms, one has to use Schedule S and input the HRA deduct portion in point 2(iii). An individual has to feed the taxable portion on point 3 along with other taxable payments.
Can Employee Gets HRA Exemption If Not Claimed On Time?
An employee staying at a rented house gets House Rent Allowance from its employer. An employee can claim for partial or full HRA exemption according to Section 10 of the Income Tax Act. For claiming the HRA exemption, one has to submit some essential documents as proof of evidence. If an employee forgets to submit the rent agreement and rent receipts as submission proof, then, they can claim the HRA deduction while filing an income tax return. In case, if they again miss claiming the HRA while filing an ITR, then they can file a revised return to correct it before the assessment year ends.
House Rent Allowance or in short, HRA, is an additional help offered by an employer to its employees. One has to submit the documents such as rent agreement and rent receipts to the employer to avail of HRA deduction. If the rent payment exceeds Rs 1 lakh then one has to submit the PAN of the landlord. If an employee is unable to submit the proof of rented accommodation then HRA is taxable in such case.