House Rent Allowance: All You Need to Know

If you are staying on rent for work out of your home town, it is likely that you cringe every month when a major part of your salary goes in paying house rent expenses. While that may not be a happy thought, what may give you some relief is the fact that the same house rent expense can help you claim a tax exemption.. If you are a salaried employee receiving a house rent allowance (HRA) and are staying in a rented house, you can claim a tax exemption in lieu of the same under Section 10 (13A) of the Income Tax Act. Those who are self employed are also eligible for tax deductions under Section 80 GG of the Income Tax Act. Here are some important factors to bear in mind about HRA that will also help you figure out how to get the maximum tax benefits and therefore plan your investments accordingly.. Who do you pay rent to? In order to get HRA benefits it is not necessary that you have to pay a rent only to a landlord. You can claim such benefits if you are paying rent to your spouse or parents. For this purpose you need to submit proof of rent being paid through rent receipts. Only two rent receipts are enough, one that is paid at the beginning of the financial year and one towards the end of it. However, do bear in mind that even if you are paying rent to your close relatives, they will have to account for the same under the head of "Income from other sources" that is taxable.. Factors influencing HRA Four major factors are taken into consideration while calculating HRA. These are as follows:. Your salary The HRA you receive The rent that you pay . The location of your residence (metro on non metro) If these four factors remain constant during the course of the year, then the tax exemption, you are eligible for will be calculated annually. However, if you shift elsewhere on rent, or there is a hike in the rent component, the same will be calculated on a monthly basis. The location of your residence is also an important factor to be considered. If you are residing in metro your HRA tax exemption is 50 per cent of your basic salary whereas for non metros it will be 40 per cent.. How is HRA calculated? Three values are of primary importance while calculating the HRA exemption that you are eligible for.. The rent allowance that your employer provides you as a part of your salary The actual rent that you pay from which 10 per cent of your basic pay is deducted. 50 per cent of your basic salary (if you are living in a metro) 40 per cent of your basic salary (if you reside in a non metro) . The least of these three values will be allowed as tax exemption on your HRA. In order to get the maximum HRA benefits, you may consider restructuring your pay structure with your employer.. Home loan and HRA benefits If you have a home loan and are availing tax benefits of the same, you can still benefit if you get an HRA allowance from your employer. This is possible if you have rented out your property to someone else and continue to stay in rented accommodation yourself. However, in such cases, you will need to account for rental income you receive under the head of "income from other sources".. Thus, as you can see, come tax season and your house rent will seem much more bearable than it usually does and can actually bring you more benefits than you had imagined.. Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

House Rent Allowance: All You Need to Know

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