- Salaried individuals, who live in rented houses, can claim the House Rent Allowance (HRA)
- This allowance is for expenses related to rented accommodation. If you don’t live in a rented accommodation, this allowance is fully taxable.
- Please note that the tax exemption of house rent allowance is not available in case you choose the new tax regime from FY 2020-21 (AY 2021-22)
Tax Exemption Under HRA Calculated
The deduction is available under the following calculation
- Actual HRA received
- 50% of Salary for those living in metro cities
- 40% of Salary for those living in non-metros
- Actual rent paid should be less than 10% of Salary
Which ever is lower.
Example
Mr Santosh, employed in Visakhapatnam, has taken up an accommodation on rent for which he pays Rs 22,000 per month during the Financial Year (FY) 2021-22. He receives a basic salary of Rs 30,000 monthly and DA of Rs 3,000, which forms a part of the salary. He also gets an HRA of Rs 2 lakh from his employer during the year.
Solution
HRA exemption is avail in the following Calculation
- HRA received – Rs 2 lakh
- 40% of basic salary and DA – Rs 1,58,400 (40%*(Rs 30,000+Rs 3,000)*12 months)
- Rent paid minus 10% of salary- Rs 2,24,400
Therefore, Rs: 1,58,400 HRA received from the employer is exempt from income tax in the above example.
Some Important FAQ’s
Q. What are HRA and DA?
ANS: Dearness allowance is a component of salary towards adjustment for living costs paid generally to government employees, public sector employees, and pensioners. Dearness allowance is calculated as a percentage of basic salary to cover the impact of inflation.
HRA is a component of salary paid by big employers towards rent payment by the employee. HRA exemption is allowed least of the below :
- Actual HRA received by the employee
- 40% of salary for a non-metro city or 50% of salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai
- Actual rent paid should be less than 10% of salary.
For the calculation above, the salary would include basic, dearness allowance, and a fixed percentage of commission.
Q. Can I claim both 80GG and HRA?
ANS: Individuals paying rent but not receiving house rent allowance can claim a deduction under Section 80GG. Also, the individual, spouse or children should not own a house property in the place of employment, business or location where the individual ordinarily resides for claiming this deduction.
Q. What happens if proof for HRA exemption is not submitted to the employer or HRA deduction is not claimed in ITR?
ANS: If you missed submitting rent receipts or a copy of the rental agreement to your employer at the time of proof submission of the declared rent, you can claim the HRA deduction while filing ITR.
In case you miss claiming the HRA while filing your return, you can file a revised return to correct the error before 31st December of the assessment year or completion of assessment, whichever is earlier.
