How HRA exemption can help you save tax in 2023-24

• HRA exemption is available only if you are living in a rented house and opt for the old tax regime.
  
• If the rent is more than ₹1 lakh per annum, then the PAN of the landlord must be submitted.
  
• You can claim both HRA and deduction on home loan interest if you fulfil certain conditions.

If you are a salaried employee, you may be receiving a house rent allowance (HRA) as part of your salary. If you live in a rented house, you can claim an HRA exemption from taxes. However, remember that the tax exemption is available only if you choose the old tax regime.

How is tax exemption under HRA calculated

The deduction available is the minimum of the following:

• Actual HRA received
• 50% of basic salary for those living in metro cities (Delhi, Kolkata, Mumbai or Chennai) and 40% for those living in non metros
• Actual rent paid minus 10% of basic salary

To calculate your HRA deduction, you may use the HRA deduction calculator available on the Income Tax Department website.

Documents required to claim HRA tax exemption

In order to claim a deduction for house rent allowance, the employee needs to provide her employer with documents such as rental agreements and rent receipts. “If the payment of rent is more than ₹1 lakh per annum, then the permanent account number (PAN) of the landlord must be submitted. Based on these proofs, employers will provide exemption for HRA in Form 16,” says Archit Gupta, founder and chief executive officer of fintech company Clear.

You can claim deduction even when your employer doesn’t pay HRA

If an individual pays rent for living in a residential accommodation but does not receive an HRA from her employer, she can still claim the deduction under section 80GG of the Income Tax Act. However, some conditions need to be fulfilled to claim this deduction.

First, you must be self employed or salaried and must not have received HRA any time during the year in which you are claiming 80GG. “The other condition is that you or your spouse or your minor child do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry on business or profession,” says Gupta.

You can claim HRA if you live with parents

If you are living in your parent’s house, you can also claim HRA. “To claim HRA, you have to enter into a rental agreement with your parents and transfer money to them every month as rent. Your parents need to report the rent received from you as income in their income tax returns,” says Gupta. If their other income is below the basic exemption limit or taxable at a lower tax slab, they can save tax on the family income.

You can claim both HRA and deduction of home loan interest

If you have a home loan, you can claim both HRA and also the tax benefits that you are eligible to claim if you have a home loan, even if both the houses are in the same city. “For this, you need to prove that the house for which you are paying rent and the house for which you are paying home loan are at different places,” says Suneel Dasari, founder and CEO, EZtax.in, a tax portal.

There must be sufficient reasons for not residing in a self-owned house. The possible reasons could be that you have availed a loan for a house but live in a rented accommodation in another city. You may also live in the same city in a rented accommodation for reasons such as work or children’s schooling. Also, the home you have purchased can be under construction and you may be living on rent elsewhere. You may also have rented out your own house and live elsewhere.

Such claims are frequently scrutinised by Income Tax officials, who may reject part of the claim if they are dissatisfied, particularly if the claimed amount is relatively high.

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