Income Tax

HRA Exemption Rules

House Rent Allowance (HRA) is a component of the salary structure for most employees, but it is not fully taxable, unlike basic salary. An exemption under Section 10 (13A) of the Income-tax Act, 1961, applies to a portion of HRA, subject to certain conditions.

The amount of HRA exemption is deductible from the total income, resulting in a gross taxable income, and this helps an employee save tax. However, HRA is entirely taxable if the employee lives in their own home or does not pay rent.

A salaried individual who opts for the new income tax regime in FY 2021-22 will not be able to claim a tax exemption on HRA.

The tax exemption for HRA is available only to salaried individuals who are staying in rented accommodation and opting for the old tax regime. Self-employed professionals cannot avail of this benefit.

The least of the following amounts is exempted from tax: actual HRA received, 50% of salary if living in metro cities, or 40% for non-metro cities, and the excess of rent paid annually over 10% of annual salary. The tax exemption is available for the period in which the rented house is occupied. The required documents to claim HRA tax exemption include rent receipts or the rent agreement with the house owner. If the rent paid is more than Rs 1,00,000 annually, an employee must report the PAN of the landlord to the employer to avail of the tax benefit.

There are special cases in which an employee can claim HRA tax exemption, such as paying rent to family members, but not to a spouse. To avoid rejection of the claim by the income tax department, an individual must have proof of the financial transactions regarding their tenancy. Section 80 (GG) of the Income-tax Act offers help for individuals who don’t get HRA but pay rent.

Disclaimer: The information provided in the above post is for general informational purposes only and should not be considered as professional tax advice. Every individual’s tax situation is unique, and tax laws are subject to change. Therefore, it is recommended that individuals seek the advice of a qualified tax advisor or accountant for personalised tax advice based on their specific circumstances.

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