Are you living in a rented house? You can exempt your rent payment from the taxable income while paying your taxes at the end of every financial year. The rent you pay every year can be adjusted to your salary to reduce your tax burden. However, make sure that you are receiving House Rent Allowance (“HRA”) from your employer. Also, you should provide the rent payment details to your employer as per the rules.
HRA provides tax benefits for the rent salaried employees pay for accommodations every year under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. Under this, a part of the salary, depending on the place of residence, your basic salary, and your actual rent, is considered as house rent expense and is exempted from tax.
Here are a few key things you should know about tax benefits on HRA:
When can you claim?
when you are living in a rented house and paying rent every month to your landlord/landlady you can get tax exemptions for the amount.
However, you also need to know that there are certain rules to calculate your tax-exempt HRA.
this tax benefit is apart from home loan, and the two 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 home loan. For instance, if your own home is rented out or you work from another city, you can still claim HRA. At the same time, you can claim tax benefits under Section 80C of the Income Tax Act for principal repayment up to Rs.1.5 Lakh, and under Section 24 on interest repayment up to Rs 2 Lakh,” he said.
So, if your salary is structured correctly, you can stand to lower your tax burden substantially. In case your salary does not have an HRA component, you can still claim the rent you are paying for the rented accommodation you are living in under Section 80GG. However, the conditions in order to claim it are different from that of Section 10.
However, what if you miss your employer’s deadline? What if you forget to claim the amount in a particular financial year? Most of us worry about how to save maximum taxes at the time of making a final declaration in the last quarter of every financial year. However, because of our hectic schedule, many often tend to miss the filing the HRA details within the stipulated time. What should you do if you are one of them?
Generally, employers require employees to furnish tax proofs before the end of a financial year - say in the months of January/February in order to help them make up for if it at all required, any shortfall in TDS made over the earlier months of the year.
Claim HRA while filing ITR
Archit Gupta, Founder & CEO ClearTax told that an employee is supposed to furnish his rent receipts as proof of rent payment he has been making in respect of accommodation taken up in the city of employment. In case he fails to do so before the year-end, the employer would go ahead with a higher deduction of TDS for the balance months of the year.
“However, if you have missed your employer’s deadline you can claim the HRA exemption at the time of filing your return of income for the year. Further, there would not be any requirement for you to submit or send your rent receipts while filing your return. However, you may retain them to form part of your records for any future submission to the tax authorities if at the need arises,” he said.
However, as mentioned earlier do not forget to keep your rent receipts and PAN of your landlord readily available when rents exceed Rs 1 lakh in a particular financial year.
How is HRA calculated?
Gupta explained the House Rent Allowance calculation, he said that the component of HRA is taxable as salary. However, an exemption on this allowance is also provided to the extent of least of the following:
=>Actual HRA received or
=>Rent paid in excess of 10% of the salary
=>50% of Salary if the residence is in Mumbai, Calcutta, Delhi or Chennai or
=>40% of Salary if the residence is in any of the other cities
Further, it is to be noted that “Salary” for the above calculation would mean Basic Salary plus Dearness Allowance (“DA”) only and does not include any other allowance.
We can understand the HRA computation better with the following example:
Mr A employed in Delhi has taken up an accommodation on rent for which he pays a monthly rent of Rs 15,000 during the Financial Year (FY) 2017-18 i.e. Assessment Year(“AY”) 2018-19. He receives a Basic Salary of Rs 25,000 p.m and DA forming part of the salary of Rs 2,000 p.m during the year. He also receives an HRA of Rs 100000 from his employer during the year. Let us understand the composition of the HRA that would be exempt from income tax during the FY 2017-18.
Here are a few key things you should keep in mind while claiming HRA benefits:
HRA is an allowance given by the employer to an employee in order to meet expenses in connection with rent payments towards accommodation taken by the employee in the city of employment.
=> You should be living in a rented home.
=> You should have furnished an agreement.
=> You are paying rent to your landlord/landlady, however, s/he should not be your spouse.
=> You can have an agreement with your parents or children. However, they need to furnish rent receipt as a part of their rental income and should acknowledge it under their taxable income.=>You should keep your rent receipts and PAN of your landlord readily available only in the case when rents exceed Rs 1 lakh in a particular financial year.
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