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House Rent Allowance- Section 10(13A)

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Update:

As announced in budget 2020, taxpayers who wish to opt for the New Income Tax Regime from AY 2021-2022 can not claim the exemption of House Rent Allowance.   

House Rent Allowance is an allowance given by an employer to an employee. The sole purpose of this is to meet the cost of renting a home. Here, we hope to clear the doubts you may have about HRA.

Do note, when we refer to salary in this article, it encompasses basic components and the dearness allowance.

1. You can claim HRA if you fulfill these three conditions:  

~ You have an HRA allowance as part of your salary package.
~ You are staying in a rented accommodation and paying rent for it.
~ The rent exceeds 10% of your salary. 

2. You can claim the rent given to your parents. Let's say you live with your parents and pay the rent. This makes your parents landlords. One of them will have to declare it in his/ her personal income tax return to prevent litigation in the future.

3. You cannot claim rent paid to the spouse. The relationship between a husband and wife is not commercial in nature; a husband and wife are supposed to stay together. So the payment of rent to a spouse will not be accepted by the income tax authorities.

4. You will need to keep all your rent receipts since it is the only proof that you are paying rent. HRA exemptions are only available on the submission of rent receipts or the rent agreement. However, if the HRA is up to Rs 3,000 per month, then receipts/ agreement is not mandatory. It is only when your HRA exceeds this amount that you will have to keep the receipts.

But it is wise to still keep them because, at the time of assessment, the Income Tax Officer may demand the receipts/ agreement.

5. The actual HRA you will be entitled to will be the least of the following.

~  The actual amount of HRA received.
~  40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata.
~ Rent paid minus 10% of salary (basic component + dearness allowance)

6. The HRA that does not get exempted is taxed. Let's see how it works with an example.

Assumptions

HRA per month = Rs 15,000
Basic monthly salary = Rs 30,000
Dearness Allowance = Nil
Monthly rent = Rs 12,000
Rental accommodation is in Mumbai.

Exemption

Actual amount of HRA = Rs 15,000

50% of salary = 50% x (30,000 + 0) = Rs 15,000

Actual rent paid - 10% of salary = Rs 12,000 - [10% of (30,000 + 0)] = 12,000 - 3,000 = Rs 9,000

Rs 9,000 being the least of the three amounts will be the exemption from HRA. The balance HRA of Rs 6,000 (15,000-Rs 9,000) is taxable.

7.  If you took a home loan for a home in one city but reside in another, you will be entitled to:

~  Tax benefit on principal repayment under Section 80C
~  Tax benefit on interest payment under Section 24
~  HRA benefit

Or, even if the home is in the same city but is not ready forcing you to rent a place, you will still be entitled to all the above benefits.

Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops.

If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above.

However, in this case, the rent you receive would be considered as your taxable income.

8. Let's say you took a home loan and have bought a home but are not residing in it for genuine reasons.

It could be that the home is at a considerable distance from your work place. Or, it could be that the home is rather small and your parents are living in it so you have to stay elsewhere.

Though your rental accommodation and home are in the same city, you can still get all the benefits.

~ Tax benefit on principal repayment under Section 80C
~ Tax benefit on interest payment under Section 24
~  HRA benefit

However, it is necessary you have some of your belongings at your home (the one you own) and you stay there on and off on during weekends and holidays.

Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns.


 




Category Income Tax
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