House rent allowance (HRA) is a component of the salary of most salaried employees. If you are one of them and have opted for the old tax regime in FY 2020-21, you can save tax through HRA exemption. To seek the tax deduction on HRA, you must provide documentation to your company; such as rent receipts or agreement. The sum for which you are qualified to request tax deduction will be shown on Form 16 provided by your company.
Firstly, you must manually compute the deductible HRA sum. Only if you pay expenditures for housing rent may you seek deduction on HRA. HRA allowances are entirely taxed for salaried persons who do not reside in rental housing. HRA exemption works only if you’re living in rented accommodation.
What is HRA?
HRA stands for House Rent Allowance.
Salaried employees who reside in leased properties can utilize the House Rent Allowance (HRA) to reduce their taxes – partly or entirely furniture store in hyderabad. This subsidy is intended to cover the costs of rental housing. But, this allowance is taxed if you do not reside in rental housing.
Salary earners often seek this tax benefit through their company by providing home rent invoices (in confirmation of their payment of rent) in the final quarter of the fiscal year.
How much can you receive under HRA deduction?
The HRA tax deduction that a salaried employee is entitled to be the minimum amount of the below units:
- The actual amount received as HRA
- 50% of (Dearness Allowance + Basic Salary) if you are living in a metro city. If not, 40% of (Dearness Allowance + Basic Salary)
- Rent amount paid – 10% of (Dearness Allowance + Basic Salary)
Individuals can seek the HRA exemption from tax after estimating it and completing their ITR. In the application, taxpayers must submit a salary breakdown, which includes the base salary plus all allowances. It must include any allowances that aren’t eligible for exemption. They should also input the non-exempt portion of HRA as well as the portion of HRA they receive a tax exemption on.
Procedure to seek HRA exemption under Old Tax Regime
You must provide valid rent receipts or agreements to your company in order for the TDS on your salary to be reduced. The tax-exempt part of HRA can be viewed on Form-16 once it has been filed. Based on the criteria for seeking HRA exemption from the tax you fulfill, either the full HRA provided to you for Financial Year 2020-21 is tax-exempt or only a portion of it is deductible.
When presenting rent agreements or rent invoices to your company, you must additionally provide your homeowner’s PAN if the yearly rent surpasses 1,00,000 INR. The taxable component of your House Rent Allowances will be included in your pay in accordance with the terms of Section 17(1) of the Income Tax Act under the heading ‘Gross Salary.’
The tax-free component of HRA will be displayed discretely under the heading ‘Allowances’. When submitting the Income Tax Return-1, you must include the tax-free component of your House Rent Allowances (partially or whole) under the heading Allowances to the amount exempt under Section 10.
However, there might be instances where you fail to provide rent agreements or invoices to your company. For example, if you are paying taxes under the new tax regime, there is no need to provide such paperwork to your employer since you are not eligible for any deductions. However, if you are planning to convert your tax regime to the previous tax regime at the time of submitting your annual Income Tax Returns, you will have to manually compute the tax-exempt amount of your House Rent Allowance. This is due to your company’s assumption that the whole HRA amount provided to you is eligible for taxation.
How to receive HRA exemption if you are not provided HRA by your company?
If you are currently paying rent for a rented property but not receiving any House Rent Allowance from your company, you are still eligible to see tax deductions under Section 80GG of the Income Tax Act. However, there are certain conditions you have to fulfill:
- You need to be salaried or self-employed.
- You did not get House Rent Allowance at any point throughout the fiscal year when you are seeking tax deduction under Section 80GG.
- You, your spouse, your minor children, or your Hindi Undivided Family (if you are a part of one) do not own any property or housing in the location where you presently dwell, perform responsibilities of employment or job, or conduct trade or business.
If you possess any home property besides the one specified above, you must not seek the self-occupied benefits of that residential property buy coffee table. The second property would be considered rented in order to seek the 80GG tax deduction.
HRA exemption on rent paid is an easy way to save tax, if eligible for the same. Make sure you understand the procedure of seeking the tax deduction to avoid unnecessary surprises in the future.