If you are a salaried
person receiving house rent allowance (HRA) from your company, you are entitled
for a tax deduction under the Income Tax (IT) Act. The tax implications of the
HRA seem to be a confusing factor for almost every person.
HRA is a grant given
by the employer to the employee to meet the cost of renting a home. It is
basically a part of the taxable salary of an individual & one receives it irrespective of the type of
property he resides in. Whether one stays in the rented accommodation or resides
in his own home, he / she will get the HRA if his employer chooses to offer the
allowance.
HRA Deduction..
But it should be
noted that one can not claim deduction for rent paid to spouse. The
relationship between a husband and wife is not commercial in nature and
therefore the rent paid to spouse is not considered by the IT authorities. On
the other hand, rent paid to the parents is eligible for exemption.
If you stay with your
parents and pay rent to them then you can claim for tax deductions. However you
need to keep all your rent receipts since it is the only proof that you are
paying rent.
To figure out how
much HRA exemption you are eligible for, consider the following 3 values:
I. The actual rent
allowance that the employer provides you as part of your salary
II. The amount of
rent you pay for your house in excess of 10% of your basic pay
III. 50 % of your
basic salary, when you reside in a metro city or / 40 % if you reside in a
non-metro city.
The least value of
these three values is allowed as tax exemption on your HRA. You can discuss
restructuring your pay structure with your employer in order to avail the most
of your HRA tax benefit.
Here is a sample
illustration for your understanding:
Mr.Suresh earns a
basic salary of Rs. 40,000 per month and rents an apartment in Chennai for Rs. 20,000 per month (hence eligible for
a 50% of the basic pay for HRA exemption). The actual HRA he receives is Rs.
25,000.
These values are
considered to find out her HRA tax exemption:
1. Actual HRA
received, that is Rs. 25,000,
2. 50% of the basic
salary, that is Rs. 20,000,
3. Excess of rent
paid over 10% of salary, that is Rs. 20,000 minus Rs. 4,000 is Rs. 16,000
The value considered
for her actual HRA exemption will be the least value of the above figures.
Hence, the taxable HRA amount for Mr. Suresh per month will be Rs. 25,000 –
16,000 (available HRA deduction) = Rs.
9,000
The seasonal frenzy
of calculating house rent allowance (HRA) surfaces from time to time, most
often towards the end of every financial year or in the beginning of the year,
when we contemplate tax planning. It is then that certain doubts and queries
about the various tax components play havoc on our minds.
You can pay rent to
your parents. But, your parents will then need to account for the same under
’Income from other sources’ and will be entitled to pay tax for the same.
However, you can not
pay rent to your spouse. In view of the relationship when you take up residence
together, such a transaction does not bear merit under tax laws.
HRA exemptions are
only available on submission of rent receipts or / the rent agreement. You need
to submit proof of rent paid through rent receipts, once at the beginning of
the year & once towards the end of
the financial year. It should have a one rupee revenue stamp affixed with the
signature of the person who has received the rent, along with other details
such as the rented residence address, rent paid, and name of the person who
rents it.
The tax benefits for
housing loan & HRA are 2 separate
entities and have no direct bearing on each other. As long as you are paying
rent for an accommodation, you can claim tax benefits on the HRA component of
your salary, while also availing tax benefits on your housing loan. This could
be the case if your own house is rented out or
/ you work from another city etc. However, you need to account for any
rental income you receive from the property you own under income from other
sources.
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