No matter whether you stay at your parents’ house or not, you can claim tax exemptions on the rent paid. If you are an employee, the house rent allowance of HRA might be part of the salary on which tax has to be paid, as everything you receive from the employer is part of taxable income.
Besides the basic exemption limit, you can claim a deduction on rent paid by following a few conditions and submitting the required documents at the time of return filing. Here is everything about tax saving from HRA under section 10 (13A) of the Income-tax Act, 1961:
Eligibility of claiming HRA
The following are the conditions of claiming HRA:
- You must be a salaried employee.
- Opted for old tax regime.
- Rent is part of your salary component, it must be on your payslip.
- You must live in your rented apartment or accommodation.
Self-employed individuals are not allowed to claim exemption from HRA.
Read more: Income Tax: From HRA to education allowance, salary components that can reduce your tax burden
Documents required at the time of return filing
There are primary two documents required to claim HRA exemptions:
- Rent agreement with the landlord, if you are paying rent to your parents, then a rent agreement with parents is required to claim an exemption. Or you can submit rent receipts as well to the employer to fulfill the condition.
- PAN card details of the landlord would become a necessary document to submit to the employer if the rent paid is more than ₹1,00,000.
Calculation of HRA
After following above-mentioned conditions and collecting the document required to claim HRA, here is how you can estimate the amount of exemption allowed:
The minimum amount of the following will be exempted from tax:
- HRA received from an employer.
- 50% of your salary if you are living in a metro city, 40% in the case of a non-metro city.
- Rent paid (-) 10% of salary.
For the purpose of the above calculation, the following becomes the part of salary:
- Basic salary
- Dearness allowances (only if it is becoming a part of retirement funds)
- The commission received (only on the basis of sales turnover)
READ MORE: Your Questions Answered: Claiming HRA tax exemption while living with your family
Example
| Basic salary | ₹50,000 |
| DA | ₹20,000 |
| Commission earned | ₹10,000 |
| Travel allowances | ₹5,000 |
| Rent paid | ₹15,000 |
| City | Metro |
| Rent received by employer | ₹15,000 |
Now your total HRA exemption will be-
- HRA received by employer = ₹15,000
- 50% of the salary, i.e., 80,000*50% = ₹40,000
- Rent paid (-) 10% of the salary, i.e., ₹15,000 (-) [10%of ₹80,000] = ₹7,000
The lowest of all three amounts is ₹7,000 will be exempted from the tax, the remaining amount will form a part of the taxable income.
You need to remember that every financial year the option of continuing with the old tax regime or opting for a new tax regime is available to you. In the case of the old tax regime, all the tax deductions are available with the old exemption limit of ₹2,50,000, while in the case of the new tax regime, you cannot claim HRA with the exemption limit of ₹5,00,000.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
