1) Conditions you need to satisfy for a HRA exemption
Under
Section 10 of the Income Tax Act, certain exemptions are permissible on
the received HRA. To claim such exemptions one must satisfy the below
conditions.
- The employee must not own the property in which he is residing.
- Employees must be paying rent for the accommodation in which residing.
- Such rent must be more than 10 per cent of his/her salary (see section 5).
if not, an exemption cannot be availed if there is no HRA component in the salary.
2) Calculating HRA for tax exemption
HRA
tax exemption is based on the HRA received, basic pay, actual rent paid
as well as if you stay in metro or non-metro. The amount exempted from
the tax calculations is the least of the following.
- The actual rental allowance paid by the employer as part of the salary.
- The actual rent paid, from which, 10% of the basic pay is deducted,
- 50% of the basic salary if residing in a metro or 40% if in a non-metro.
3) HRA benefits in case of rent paid to parents
If
you are residing in a house owned by your parents and you are paying
rent to them, technically, they are the landlords. You could, thus,
claim an exemption, provided they show the same transaction in their
income tax returns.
Rent to husband/wife are not permissible, as a husband and wife relationship is not considered commercial and are also are meant to stay together.
4) Proof to be submitted for HRA claims
If
the house rent paid is upto Rs. 3000 per month, then rent receipt is
not mandatory. Otherwise you will have to submit the rent receipt proofs
to claim the tax deduction. A
one rupee revenue stamp affixed with the signature of landlord receiving
the rent, with other details of the rented address, rent paid and name
of the person who rents it, need to be mentioned on the receipt.
5) Meaning of salary for HRA calculation
Salary for HRA purposes is as follows:
- Basic salary (Basic Pay plus Dearness Pay)
- Dearness Allowance
- Commissions earned if any
This salary will not include arrears of earlier years, received during the previous year for which the claim is made.
6) You could claim HRA exemption as well as a home loan tax benefit at the same time
HRA
exemption could be availed even if you are claiming a home loan tax
benefit. For a home loan, tax benefits are available towards the
repayment of principal. So, as long as you meet the criteria for a home
loan deduction as well for a HRA exemption, you could go ahead and claim
both tax benefits. This could be possible, in cases where you may be
working in another city.
7) Period in which HRA exemption can be claimed
The
period in which the HRA is actually received from the employer, must
necessarily pertain to the period in which the employee actually pays
rent for his accommodation. In case HRA is received for a period in
which no rental accommodation is occupied by the employee, exemption
cannot be claimed.