House rent allowance is a grant provided by the employer to the employee to meet the cost of living in a rented house. Its also referred to as HRA allowance.
HRA allowance forms part of the salary that the employee receives from the employer every month. Indian Income tax act provides tax exemption under section 10(13A) read with rule 2A due to which the entire amount of house rent allowance will not be taxed in the hands of the employee.
To claim tax exemption u/s 10(13A), all the conditions specified in the tax laws are to be fulfilled and the employer needs to take certain steps to claim it.
Whether the employee stays in a rented house or in his own house, he will get House Rent Allowance (HRA) from his employer, however, to claim HRA exemption from the allowances received, you need to follow conditions that are specified in the income tax act.
Below in this article, we have listed a few tips which will help you to claim your HRA exemption from the government.
Tips to get tax exemption on your house rent allowance – HRA
In order to claim the House Rent Allowance (HRA) exemption, you need to pay rent to your landlord. Such payments can be made in cheques or cash. If rent is due but not paid, then exemption benefits on HRA will not be available to you.
Rent can be paid to anyone but he or she should be the owner of the house. Recently it has been held that the House Rent Allowance (HRA) exemption can be claimed if it is paid to the wife being the owner of the house.
If you have not paid it for the whole year then HRA exemption can be claimed for those months for which you have actually paid rent. For example, if you have stayed in rented accommodation for 4 months then you can claim HRA exemption for 4 months only, not for the whole year.
At the beginning of the year, the employer will be collecting an income tax declaration from you where you need to specify details of rent that you are about to pay to your landlord for the previous year.
Based on your declaration, the employer will be calculating HRA exemption for the whole year and balance if any left out will be taxable as part of gross salary. If in between the year, rent paid or payable is changed then such declaration has to be changed by submitting a fresh declaration to the employer.
As per our tax laws, least of the followings will be exempted as HRA;
- The actual HRA received from your employer
- Rent paid in excess of 10% of salary (Salary means your basic salary plus dearness allowance forming part of salary if any).
- 50% of salary if the rented accommodation is in Mumbai or Delhi or Kolkata or Chennai or 40% of salary if rented accommodation is in other cities (Salary means your basic salary plus dearness allowance forming part of salary if any).
If rent paid by you is less then 10% of your basic salary plus dearness allowance then nothing will be exempted for you.
At the year-end, you need to collect rent receipts from your landlord and submit it to your employer to claim an exemption on House Rent Allowance (HRA). Some employers are also collecting photocopy of rent agreement in addition to the rent receipt. You can talk to your employer on this to understand the policy that they follow for HRA exemption.
If rent paid by you is more than Rs 1,00,000 per year, then while collecting house rent receipts from your landlord you are required to collect a photocopy of the landlord’s Permanent account number or PAN. You can put the PAN in the receipt so that your employer will be aware of the landlord’s PAN.
If rent paid is less than or equal to Rs 3000 per month then you need not submit house rent receipt to your employer. Without any house rent receipt you can claim exemption for HRA received. But, it does not mean that you are not required to collect house rent receipt from your landlord. This provision is only for TDS purpose. In case it is asked by the assessing officer to produce the rent receipt then you need to produce it to him.