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How to Claim HRA Exemption While Income Tax Return Filing?

Income Tax Return Filing

HRA, i.e., House Rent Allowance, is one of the most important allowances that is provided to salaried individuals by their employers. It will be a very crucial element provided by the employers to the employees in order to cover the cost of renting a home. As a salaried taxpayer, you can claim the HRA, i.e. House Rent Allowance, while Income Tax Return Filing will reduce your tax liability. However, for this, you should have the proper knowledge of HRA. In this blog, we will offer you a comprehensive guide related to HRA i.e. House Rent Allowance and how to claim it while ITR Filing online.

Before moving ahead, let’s talk about HRA, i.e. House Rent Allowance-

Understanding HRA, i.e. House Rent Allowance

HRA, i.e. House Rent Allowance, is the allowance that has been given to you by your employers as a part of your salary. It will be provided in order to cover the cost of living in rented accommodation. The HRA is completely non-taxable and will be exempted as per the criteria set by the Income Tax Department. 

Who Can Claim HRA while Income Tax Return Filing?

Not everyone can claim a House Rent Allowance. The Income Tax Department has set the eligibility criteria for claiming HRA. You can claim it only if you meet the given conditions. Here are the conditions-

  • Salaried Individual

This benefit has been specifically available for the salaried individuals. If you are self-employed, then you can’t claim this exemption.

  • HRA as Part of Your Salary Structure

You can claim the HRA (House Rent Allowance) exemption only if the HRA is a component of your salary structure.

  • Live in Rented Accommodation

You can claim this exemption only if you reside in a rented accommodation and pay rent for it. If you live in your own property, then you will not be eligible to claim HRA exemption.

  • Proof of Payment of Rent

You must have a valid proof of payment of rent, including rent receipts & rental agreement. And you also need to submit the original receipts to your employer.

  • Applicable in Old Tax Regime

Just remember that you can claim HRA, i.e., the House Rent Allowance exemption, only if you opt for the old tax regime to file an income tax return.

  • PAN Card of Landlord

If you pay an annual rent of more than Rs. 1 Lakh, you need to submit the details of the PAN Card to your employer.

Amount of Claiming HRA Exemption during Income Tax Return Filing

You can claim the lowest of the amounts given below as an HRA (House Rent Allowance) Exemption. Just remember the following points to calculate the amount of your HRA exemption-

  • Actual HRA Received

You will get the total amount from your employer as HRA, i.e., House Rent Allowance during a specific financial year.

  • Some Amount of your Basic Salary

If you live in a metro city (Delhi, Mumbai, Kolkata, or Chennai), the amount will be 50% of your basic salary. And in case you live in a non-metro city, then the amount will be 40% of your salary.

  • Actual Rent Paid Minus 10% of Basic Salary

The excess rent that you paid over the 10% of your basic salary.  

You can claim the lowest of the above amounts as the HRA, i.e., the House Rent Allowance Exemption.

How do you calculate HRA exemption for income tax return filing?

You can easily understand the calculation of the HRA exemption that you claim while using online ITR Filing with the help of a detailed example.

Let’s assume the following details for a salaried individual who resides in a metro city (Delhi, Kolkata, Mumbai, or Chennai)-

  • Basic Salary: Rs. 40,000/- per month
  • HRA (House Rent Allowance) Received: Rs. 15,000/- per month
  • Actual Rent Paid: Rs. 18,000/- per month

  Now calculate the HRA Exemption-

  • Actual HRA Received per annum: Rs. 15,000 x 12 = Rs. 1,80,000/-
  • 50% of the Basic Salary: 50% of (Rs. 40,000 x 12) =  50% of Rs. 4,80,000 = Rs. 2,40,000
  • Excess Amount Paid over 10% of Salary: (Rs. 15,000 x 12) – 10% of (Rs. 40,000 x 12) = Rs. 1,80,000 – Rs. 48,000 = Rs. 1,32,000/-

Among the above given amounts, the minimum amount is Rs. 1,32,000/-. So, you can claim this amount as HRA i.e. House Rent Allowance exemption.

Example for Calculation of HRA Exemption During Income Tax Return Filing

Let illustrate the calculation of HRA Exemption for you-

Example 1: Let Manoj live in Surat (non-metro city) and is a salaried employee in a Multinational Company. The details of his salary are-

  • Basic Salary: Rs. 60,000/- per month
  • HRA (House Rent Allowance) Received: Rs. 20,000/- per month
  • Actual Rent Paid: Rs. 15,000/-

Amount that Manoj can Claim as HRA Exemption

  • Actual HRA Received per annum: Rs. 20,000 x 12 = Rs. 2,40,000/-
  • 40% of Basic Salary: 40% of (Rs. 60,000 x 12) = 40% of Rs. 7,20,000 = Rs. 2,88,000/-
  • Excess Amount Paid over 10% of Salary: (Rs. 20,000 x 12) – 10% of (Rs. 60,000 x 12) = Rs. 2,40,000 – Rs. 72,000 = Rs. 1,68,000/-

So, Manoj can claim an amount of Rs. 1,68,000/- as HRA exemption.

Example 2: Let Varsha live in Delhi (metro city), and is a salaried employee in a Private Company. The details of her salary are-

  • Basic Salary: Rs. 50,000/- per month
  • HRA (House Rent Allowance) Received: Rs. 18,000/- per month
  • Actual Rent Paid: Rs. 18,000/-

Amount that Varsha can Claim as HRA Exemption

  • Actual HRA Received per annum: Rs. 18,000 x 12 = Rs. 2,16,000/-
  • 50% of Basic Salary: 50% of (Rs. 50,000 x 12) = 50% of Rs. 6,00,000 = Rs. 3,00,000/-
  • Excess Amount Paid over 10% of Salary: (Rs. 18,000 x 12) – 10% of (Rs. 50,000 x 12) = Rs. 2,16,000 – Rs. 60,000 = Rs. 1,56,000/-

So, Varsha can claim an amount of Rs. 1,56,000/- as HRA exemption.

Steps to Claim HRA Exemption during Income Tax Return Filing

You can claim HRA Exemptions while online ITR Filing efficiently by following the simple steps given in this section of the blog. Here are the steps included in the process of claiming HRA, i.e. House Rent Allowance Exemption-

Step 1: Gather Required Documents

First of all, you need to gather all the requisite documents, including-

  • Rent Receipts: You must collect all the rent receipts for the entire financial year. The receipts include the name, address, & PAN (if annual rent exceeds Rs. 1 Lakh) of the landlord as well as the amount of the rent.
  • Form 16: This form will be provided by your employer that consists of the details of your salary, including HRA, & taxes deducted.
  • Rental Agreement: You can serve the rental agreement (if applicable) as an additional proof.

Step 2: Calculate the HRA Exemption Amount

After that, you need to calculate the amount of HRA exemption as per your actual HRA received, basic salary, and rent paid by you. You can easily calculate this amount by using the method that we discussed above.

Step 3: Fill Details of HRA Exemption in ITR Form

The next step is to file the appropriate ITR Form. While filing ITR online, you need to fill all the details related to your HRA Exemption in the proper section of your ITR. Usually, it will be given under the “Salaries” section in your form.

Click here to learn how you can file Income Tax Return online effortlessly.

Step 4: Verify & Submit Your ITR

After successfully filling all the details in the form including the details of HRA Exemption, you need to verify the information you entered in your ITR. At last you need to the Income Tax Return. You should keep the copies of all the documents that you submitted for the future reference.

You can claim the HRA i.e. House Rent Allowance exemption easily by following the above mentioned steps carefully.

Common Mistakes to Avoid to Claim HRA Exemptions while Income Tax Return Filing

Although it is pretty simple to claim HRA exemptions while filing ITR Online, but you need to be very careful. Sometimes, the individual make some common mistakes and needs to get the accurate HRA exemption. Here, in this section we will explain you about some common mistakes that you should avoid in order to claim HRA exemption.

  • Incomplete Documentation

It will be best for you to always keep the proper documentation including rent receipts and rental agreement to support your HRA claim.

  • Incorrect Calculation

Just make sure that you calculate the amount of HRA exemption precisely by using the calculation method earlier. Keep this point in your mind that you can claim the minimum of the three amounts that mentioned earlier as HRA exemption.

  • Rent Paid to Family Members

In case you are paying the rent to your parents or any other family members, you need to make sure that the rent is actually being transferred as well as reflected in their ITRs.

  • Missing PAN of Landlord

When you paid an annual rent of more than Rs. 1 Lakh, you need to provide the PAN of landlord. If you fail to do so, your HRA claim will be rejected.

Is it Possible to Claim both HRA & Home Loan Interest Deduction while Income Tax Return Filing?  

Sometime, many individuals think whether they can claim both HRA & Home Loan Interest deduction or not. So, here is your answer. You can claim HRA and Home Loan Interest deduction for the property own by you only if you fulfill the specific conditions. For this you need to specify the reason of why are you not living in your own house. The two primary reasons for not staying in their own house are as given below-

  • Office Location is Far from your own house

Sometimes, the location of the office of an individual is very far from the house they own. In such cases you can claim both HRA as well as Home loan benefits.

  • Rented & owned Accommodations are in different cities

Usually the individuals need to move to the other cities for their job requirements. In such situations, you are eligible to claim booth HRA & Home Loan Interest Deductions.

Final words

HRA i.e. House Rent Allowances are the critical aspect of the tax planning for salaried individuals. If you claim the HRA during online ITR Filing, you can reduce your taxable income & hence tax liability. You can claim the HRA exemptions smoothly & precisely while filing ITR by proper understanding of the eligibility criteria, calculation method, and required documentation. To get a clear picture, you can seek the expert guidance of ITR Filing consultants like Legal Pillers. Legal Pillers has a dedicated team of professionals having expertise in laws & regulations related to taxation. From filing ITR to claiming HRA exemptions & other deductions accurately, we are always there to help you. You can easily find us by searching “CA near me for ITR Filing”. So, what are you waiting for? Choose Legal Pillers as your trusted partner and maximize your tax refunds.

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