Housing is considered one of the basic requirements of any individual like food, clothing, and medicine. Some individuals possess housing of their own or inherit properties from their ancestors, while most others live in rented properties. IT Act, of 1961 introduced the concept of house rent allowance, allowing tax redemption for rental expenses, as housing is one of the basic indispensable needs of any individual.
What is a house rent allowance or HRA?
HRA is a special and basic component allowance provided by the employer for his/her employee(s) who live in rented properties. For any salaried individual, HRA forms a part of their compensation. Moreover, this allowance even allows tax redemption if claimed by the concerned employee(s) on account of rental expenditures, thus lowering their taxable salaried income. The income tax calculator and HRA calculator are two handy digital tools that flawlessly perform the job of calculation.
HRA exemption for salaried individuals in income tax
Under Section 10-13A of the IT Act, 1961, any salaried individual living in rented properties, is eligible to claim HRA. According to the existing provisions, the minimum among these amounts is allowed as an exemption for them:
- The actual amount of HRA as received from the employer
- In case you reside in a metro city, it accounts for 50% of the basic salary including DA. In the case of any non-metro city, this percentage reduces to 40%.
- Rent payment-10% of the basic salary including DA
The income tax calculator and HRA calculator solve the issue in moments.
HRA exemption in income tax for non-salaried and self-employed individuals
In case you reside in a rented property and you are:
- A self-employed individual
- A salaried individual without any HRA facility from the employer
Under such circumstances, you can easily claim for deduction of housing rent in income tax. However, under such circumstances, this HRA deduction is permissible under the provisions of Section 80GG of the IT Act, 1961. Moreover, the eligible amount of HRA deduction will be calculated to reach the lowest among the following:
- INR 5000/month
- 25% of the adjusted entire income
- Rent paid-10% of the adjusted entire income
Adjusted total income
The adjusted total income is calculated by the income tax calculator and the HRA calculator by deducting the following from the total income:
- STCG, u/s 111A of the IT Act, 1961
- Incomes u/s 115A and 115D
- Deductions are done under sections 80U and 80C and excluding the deductions under Section 80GG for HRA
HRA calculator is an online digital tool that offers instant results, aiding human errors for calculating HRA exemption. You need to enter the basic and relevant details like your basic salary (for salaried individuals) including DA, HRA allowance as paid by the concerned employer, the actual amount of rent paid, adjusted total income during deduction claims u/s 80GG, and your location. As you provide these facts and figures, the calculator works automatically to reveal the actual result.
HRA exemption claim during a running home loan
Under such circumstances, you can claim tax exemptions on your home loan. Moreover, for the rented property, you are eligible to claim for HRA exemption as permitted by the IT Act. You can claim tax redemption for the rented accommodation and the home loan like this:
- Principal home loan repayment can be claimed as an exemption u/s 80C up to INR 1.5 lakhs
- Interest paid on a home loan is eligible for reduction u/s 24(b) up to INR 2 lakhs
- In case you are a first-time home buyer, and the stamp duty of the bought property is within INR 45 lakhs, an additional tax reduction is available. Under such circumstances, you are eligible for claiming a reduction up to INR 1.5 lakhs, u/s 80 EEA, along with a reduction of INR 2 lakhs, as available u/s 24(b)
- HRA exemption u/s 10-13A
However, in order to claim these benefits, you need to prove that your rented property and personal property are located in two different places. Moreover, the rental income as earned from the personal property that you might have rented out is eligible for taxation by your hands.
HRA exemption while staying with parents
In case you are living with your parents on their property, you can still claim for HRA exemption from your total income. You need to set up an authentic rent agreement with your parents and pay the set rent monthly. Ask them for issuing a legal rent receipt that can be submitted as rent proof for claiming HRA exemption. Depending on the circumstances, the HRA exemption will be allowed either u/s 80GG or Sec. 10-13A.
Basic rules of HRA exemption
- The HRA amount as offered by the employer must not exceed 50% of the basic salary issued to the employee concerned
- Any rent paid to the spouse will not be considered valid rent eligible for HRA exemption
- In case your landlord is an NRI, you must deduct a TDS of 30% of the total rent paid and duly declare it to the IT authorities
- You must mention HRA deduction or exemption in your IT returns
The online income tax calculator can easily determine your income tax based on your income. Depending on the result, you can easily assess your HRA and HRA exemptions associated with it without any difficulty.