Understanding HRA
HRA or House Rent Allowance is an allowance given by an employer to the employee to meet their rental expenses. This allowance is tax-exempt up to a certain limit as prescribed by the Income Tax Department.
Eligibility Criteria for HRA
To be eligible for HRA, the employee must meet the following conditions:
- The employee must be a salaried individual
- The employee must be paying rent for a residential accommodation
- The employee must be receiving HRA as a component of their salary
Steps to Apply for HRA
Applying for HRA is a simple process. Here are the steps you need to follow:
- Collect the required documents such as rent receipts, lease agreement, PAN card, and salary slips
- Calculate the amount of HRA you are eligible for using an HRA calculator
- Fill out Form 12BB and submit it to your employer
- Your employer will then calculate the amount of HRA you are eligible for and include it in your salary
- The HRA amount will then be deducted from your taxable income
FAQs
1. What is the maximum amount of HRA that can be claimed as tax-exempt?
The maximum amount of HRA that can be claimed as tax-exempt is the least of the following:
- The actual amount of HRA received
- 50% of the employee’s salary (for employees living in metro cities) or 40% of the employee’s salary (for employees living in non-metro cities)
- Actual rent paid minus 10% of the employee’s salary
2. Can HRA be claimed if the employee is living with their parents?
Yes, an employee can claim HRA if they are living with their parents and paying them rent. However, the parents must show the rent received as their income and pay tax on it.
3. Can HRA be claimed if the employee owns a house?
No, an employee cannot claim HRA if they own a house and are not paying rent for it. However, they can claim tax benefits on the home loan taken to buy the house.
4. Can HRA be claimed for a second house?
No, an employee can claim HRA only for the rent paid for the accommodation they are currently residing in. HRA cannot be claimed for a second house.
5. Can HRA be claimed if the employee is living in a hostel?
No, an employee cannot claim HRA if they are living in a hostel as HRA is only applicable for rental accommodation.
6. Is it mandatory to submit rent receipts to claim HRA?
Yes, it is mandatory to submit rent receipts to claim HRA. If the employee is paying rent of more than Rs. 1 lakh per annum, they must also provide the landlord’s PAN card details.
7. Can the landlord refuse to provide rent receipts?
It is the responsibility of the landlord to provide rent receipts to the tenant. If the landlord refuses to provide rent receipts, the employee can file a complaint with the Rent Control Office.
8. Can HRA be claimed for a part of the year?
Yes, HRA can be claimed for a part of the year. The amount of HRA that can be claimed will be calculated based on the number of months for which the employee has paid rent.
9. Can HRA be claimed if the employee is living in a company-provided accommodation?
No, HRA cannot be claimed if the employee is living in a company-provided accommodation as the rental expenses are borne by the company.
10. Can HRA be claimed if the employee is self-employed?
No, HRA cannot be claimed if the employee is self-employed as they are not considered as salaried individuals.
Conclusion
Applying for HRA is a simple process that can help you save on your tax liability. Make sure to collect all the required documents and submit them to your employer to claim HRA.
Tips
- Keep a record of all rent receipts and lease agreements
- Use an HRA calculator to determine the amount of HRA you are eligible for
- Submit Form 12BB to your employer in a timely manner
- Keep track of the tax-exempt HRA component in your salary
Table
| City of Residence | Minimum HRA as a % of Salary |
|---|---|
| Metro Cities (Mumbai, Delhi, Kolkata, Chennai) | 50% |
| Non-Metro Cities | 40% |
