HRA or House Rent Allowance is an essential part of the income that employers pay to employees in order to accommodate their housing needs. Even self-employed people are eligible to claim tax advantages from HRA. Irrespective of whether you are a salaried employee or an independent contractor, you can qualify for an HRA exemption under Section 80GG.
What Is House Rent Allowance?
HRA is a crucial component of a person’s salary. An employee who rents housing receives a house rent allowance from their employer.
Now, let’s take a closer look at a few important facts that you must know regarding your HRA:
1. Correct Documents Are A Must
Your company will require you to provide a properly stamped rent receipt that can be filled out either monthly or quarterly, as well as your rental agreement. It is crucial that the rent receipt includes information on the rent amount, your landlord's name and signature, and the full address of the property. You must also present your landlord's PAN card if your annual rent is more than Rs 1 lakh. In the absence of a PAN number, the landlord must present a completed Form 60.
2. HRA Eligibility Is Not Provided By Default
Only salaried employees are eligible for this provision under Section 10(13A), not business owners who work for themselves. Furthermore, a salaried individual who receives an HRA component as part of their CTC package but does not rent housing is not qualified to claim an HRA tax exemption. You may be eligible for an exemption under Section 80GG of the IT Act if you are self-employed or a salaried professional whose pay does not include an HRA component.
3. HRA Computing Factors
Three important criteria are taken into account while calculating HRA in accordance with tax regulations for HRA:
a) The rent reimbursement from the employer
b) Subtract 10% of your basic pay from the actual rent you paid
c) Fifty percent of your base pay (if you are residing in a metro city) and 40% of your starting pay (if you stay in a non-metro city).
The lowest of these three numbers will be considered as your HRA exemption.
4. Requesting Exemption For Both Home Loan & HRA
As long as you have the relevant papers and other documentation, you may claim income tax deductions for both the HRA on the rental home you are presently occupying and the payment of a home loan on another property. You can also receive tax benefits on interest and principal payments made in repayment of a home loan. Section 80C of the Income Tax Act provides an exemption for principal repayment up to Rs. 1.5 lakh, while Section 24 provides an exemption for interest repayment up to Rs. 2 lakhs. But remember that your claim can sometimes get rejected if you are unable to show the necessary facts and documents.
5. Claiming HRA Without Living In A Rented Apartment
Many employed individuals live in their own apartments or with their parents and receive an HRA allowance from their employer. In such a situation, you can still qualify for an HRA exemption if you provide the appropriate documentation. And if your parents own the property, they must declare the rent you pay as rental income on their income tax returns in order to qualify for the exemption.
6. While Submitting Tax Returns, HRA Can Be Claimed
You can still submit HRA requests while submitting IT returns, even if you failed to provide your employers with your rent receipts and other supporting documentation. The refund can be obtained in accordance with any further tax deductions.
Conclusion
Now that you know these important facts about your HRA, make sure you adhere to these requirements and provide all the legal documentation as specified above. This will assist you in saving tax by lowering your total taxable income.