Filing your taxes can seem to be overwhelming at times. But if you know how you can save taxes, the job becomes less stressful and more enjoyable. A good way to save tax is by claiming your HRA exemption. This is a simple way in which many salaried people save their precious tax money. If you are a newbie and need help in claim HRA exemption while filing your taxes, we are here to help you.
What is HRA?
As a salaried person, your monthly income is broken up into various components. One of the main components here is the house rent allowance, also known as the HRA. This is paid by your employer so that you can clear the rent dues for your accommodation. If you do not own a house of your own you will have to live in a rented house. The rent you pay for this will qualify as a tax deduction.
How is the HRA exemption calculated?
The HRA exemption is calculated on three parameters:
- 10% of the total salary you earn
- 50% of the basic salary (for residents of Delhi, Mumbai, Chennai, and Kolkata) or 40% of the basic salary if you reside elsewhere
- The fixed amount you receive as HRA from your employer
Whichever amount is lower out of the three parameters listed above will qualify as the HRA decision for the year under Section 10 – 13A of the Indian Income Tax Act.
HRA for self-employed people
As mentioned above, the HRA exemption in Income Tax is only available for salaried people in India. If however, you are self-employed, you can still get a tax exemption for the rent you pay. Here, the deduction will happen under Section 80GG. The calculations are simple and the lower of the following will be considered for an overall HRA deduction under Section 80GG:
- 10% of the total salary you earn
- The rent amount you pay in the entire year
- 25% of the total income you earn from different sources in a financial year
The house rent allowance tax exemption under Section 80GG is also available for people who do not receive HRA from their employees and pay their rent from their own pockets. If you work in a firm that doesn’t offer HRA, look to get the tax exemption under Section 80GG. Fill Form 10BA to be eligible for this handy tax deduction.
Getting the HRA exemption along with a home loan
You can get multiple tax benefits for the different house accommodations you have. For example, you may have a house in your name but you live in a different house. This may happen because your home is in a different city or because you choose to live in a larger accommodation. If you have a home loan that you are repaying, you can get the following tax rebates:
- Tax exemption up to INR 1.5 lakhs a year for the principal you repay, under Section 80C
- Tax exemption up to INR 2 lakhs a year for the interest you pay, under Section 24B
Apart from this, you can also get the HRA exemption under Section 10 – 13A. Make sure you maximize the tax-saving and get all the deductions you are eligible for as this will help you to make more savings at the end of the year.
HRA exemption when living with parents
Many people in India live with their parents in a house owned by their parents. If you too live in a similar setup you can claim the HRA exemption under Section 10 -13A. All you have to do is request your parents to give you a rent receipt each month stating that you are paying them to rent for living in their house. You may also need to draw up a rent agreement for this purpose and submit it when filing your income tax returns.
HRA exemptions for rents over INR 1 lakh
If you pay a higher rent amount and the total yearly rent exceeds INR 1 lakh, you will have to request your landlord to share their PAN card with you. The landlord’s PAN number is needed for you to get the tax exemption if the yearly rent exceeds INR 1 lakh.
Conclusion As you can clearly see from the points mentioned above, getting the HRA exemption is very simple. You need to submit the rent agreement and the rent receipts so keep the documents carefully. Whether you qualify for an exemption under Section 10 – 13 A or Section 80GG, make sure you file for the tax return. This is a tax that you are eligible to save as a citizen of India and you should make the most of it. Visit https://www.turtlemint.com/save-tax-on-house-rent-allowance/ to know more.