Decoded: House Rent Allowance and its Tax Benefits
House Rent Allowance (HRA) is accounted for under section 10 (13A) of the Income Tax Act and Rule 2A of the Income Tax Rules for salaried people. On the other hand, self-employed individuals are not eligible for HRA exemption under this provision but can claim tax benefits under section 80GG of the Income Tax Act.
HRA for Self-Employed Individuals
Self-employed people can also receive House Rent Allowance deductions and HA tax exemptions (HRA). They are eligible for benefits under Section 80 GG.
This section can also be used by salaried employees who do not receive HRA to claim tax exemptions.
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Salaried Individuals are Eligible for an HRA Tax Exemption
Section 10-13A of the Income Tax Act provides the HA tax exemption. The deduction will be the smallest of the following: The House Rent Allowances provided by the employer.
If the employee lives in one of India's metro cities, they are eligible for an HRA tax exemption on 50% of their wage. Delhi, Mumbai, Calcutta, and Chennai are India's major cities.
If the employee lives in another city, HRA might be deducted from 40% of the income. The actual monthly rent paid by the employee for their dwelling, minus 10% of their pay.
The actual monthly rent paid by the employee for their dwelling, minus 10% of their pay. The basic wage, dearness allowance, and commissions may all be included in the salary.
Also read: Tax Planning: How to Invest Your Money to Save Tax?
When the Rent is More Than Rs 1 Lakh
The individual might claim HRA tax exemptions if the rent paid for the house is more significant than Rs 1 lakh. They must provide the property owner's PAN number and rent receipts.
Both Home Loan and Rented Residence Tax Benefits
If the employee's home is rented to someone else and they live in a rented space, the HRA tax exemptions on the home loan and the rent paid can be claimed. In this instance, the employee must deduct their income from the property (for which they took out the home loan) and pay the appropriate tax.
Note that if the rented and owned properties are in the same city, HA tax exemptions are not applicable for both.
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HRA Tax Exemptions When an Employer Refuses to Offer Deduction Benefits
Even if the employer refuses to pay the House Rent Allowances tax benefits, the employee can claim the HRA tax exemption when filing income tax returns. The excess TDS can be refunded using the exempted monetary amount.
HRA Tax Exemptions When more than one Member of the Family Pays the Rent
If both the partners are working and paying rent, they can claim the HA tax credit to provide separate rent payment receipts. However, they can only claim the tax exemption for single rent payment.
The following conditions must be met to claim tax exemptions related to the House Rent Allowance:-
•The HRA exemption under Part 80, or any other section, is only available to employees who pay the rent to the landlord. There are no exceptions for periods in which the rent is not paid.
•The HRA tax is calculated every month when a change in job location (e.g., from non-metro to metro cities or vice versa) or a change in wage occurs.
As a result, the deductions or HRA tax exemptions differ at each period of change.
•If the rent is paid to anyone other than a father, the employee is entitled to HRA and the tax benefits that come with it. Paying the rent every month and exclusively through bank transfers is preferable to collect the deductions. This will make it easier for the IT department to save costs.
Also read: 10 Income Tax Planning Tips for Salaried Employees
Exemptions from HRA taxes on Rent Paid, Section 80 GG of the Code of Federal Regulations
Tax exemptions are available under Section 80 GG of the Income Tax Act for expenditures paid toward house renting. However, the HRA exemptions under this section are only accessible to employees who have not claimed a deduction under another section of the Income Tax (IT) Act. Under this section of 80GG, self-employed professionals and workers who do not get the House Rent Allowance can claim HRA tax exemptions for expenses incurred in paying rent of the house.
Calculate your HRA
The HRA calculator is a free online tool that will assist you in calculating your House Rent Allowance and any tax exemptions you may be eligible for.
HRA is not a right that employees have, and it is up to the employer to grant or deny it. Those who receive free housing as part of their job do not receive a House Rent Allowance and hence cannot claim any HRA tax exemptions.
Calculate your HRA
The HRA calculator is a free online tool that can help you figure out your House Rent Allowance and any tax breaks you could be entitled to.
The HRA is not a right that employees have, and it is up to the employer to grant or deny it. Those provided with free housing as part of their job do not receive a House Rent Allowance and hence are not eligible for HRA tax breaks.
The receipts for the rent that the employee has paid.
The receipt includes the following information:
• The landlord's date of birth.
• The tenant's name
• The landlord's PAN card information
• The rented accommodation's address
•The length of your stay
•A revenue stamp
•Landlord's signature on the revenue stamp
• Validity of receipt can last for three months. As a result, you'll require at least the latest four receipts for a year.
•When necessary, a photocopy or Xerox of the rental agreement
The employee might also pay the house rent to their father and claim the House Rent Allowance tax exemptions (HRA).
Conclusion
A salaried person should take advantage of the HRA tax exemption, as it is one of the most lawful ways to save money. Make a point of keeping all genuine pieces of evidence. Rent payments made in cash are difficult to prove, so opt for a money transfer through a bank account to be on the safe side. The exemption amount is calculated according to section 10(13A) of the Income Tax Act. If calculating the exemption amount is proving difficult, try Tax2win's accurate and free HRA calculator.
(Check out 'Learn & Grow with Wizely' to read and learn more about tax planning instruments.)