How Much HRA is Exempt From Tax? Let’s Discuss

The Assessee is responsible for correct solution of income tax liability of their employees, deduct appropriate amount of income tax and deposit it with the government.

If you’re a salaried individual, you can claim House Rent Allowance (HRA) to meet your rented accommodation-related expenses. Salaried individuals who live in a rented house can claim this exemption and bring down their taxes. HRA can be fully or partially exempt from tax. Our HRA exemption calculator will help you calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.

If you don’t live in a rented accommodation but still get house rent allowance, the allowance will be fully taxable.

The entire HRA received is not always fully exempt from tax. The actual HRA offered will be the lowest of the following three provisions:

  • The amount received as the HRA from the employer.
  • Actual rent paid less 10% of the basic salary.
  • 50% of the basic salary if staying in a metro city and 40% in a non-metro city.

The remainder of your HRA is added back to your taxable salary. Our calculator can easily help you figure out your HRA exemption.

Can I pay rent to my parents to save tax?

A large number of salaried individuals live in their parents’ home, not in a rented accommodation. If you are given house rent allowance and live with parents, you can still get exemption on it by showing that you pay rent to your parents. To avail this exemption, your parents must be the owners of the house and they must show the rent you give as rental income in their income tax returns.

What should I do if I forgot to submit the rent receipts to my employer?

The good news is that HRA can be claimed directly on your income tax returns. If you didn’t submit rent receipts to your company HR at the time of proof submission, you can claim HRA later on when you file your income tax returns. To claim this, adjust your taxable income to include HRA and calculate tax that is payable on the lowered taxable income. You will then be able to claim a refund if tax has been deducted in excess.

Will it be helpful for claiming home loan deductions?

Yes, If you’re a homeowner and you are paying back your home loan, you can also claim HRA if you live in a rented property. You are allowed to avail both the benefits to lower your taxable income.

Employers are also required to be more careful in examining documents submitted by employees in support of their claim. The government should also consider allowing a standard deduction from salary income for all salaried employees instead of such allowances so that individuals do not make incorrect claims.

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