HRA, House Rent Allowance, is a component included in the salary of many employed individuals. However, could renting a house make you eligible for a tax exemption on your HRA?
Please note that you can only claim HRA if you have chosen the old tax regime. This deduction is not available under the new tax regime. Now, let us dive into more details!
A common element in the employee's pay slip, HRA, is an amount employers provide to employees to cover their rent expenses. It is a part of your taxable income. However, you can save taxes through HRA exemption.
Here, we will cover HRA for salaried individuals. HRA exemption is an amount deducted from your taxable income under Section 10 (13A), rule 2A of the Income Tax Act if you meet specific eligibility criteria:
You can claim HRA exemption that is the minimum of:
The remaining amount of HRA will be a part of your taxable income. It is important to note that this calculation applies to HRA for salaried individuals under
Note: The "salary" mentioned above includes basic salary, dearness allowance and sales commissions. No other allowances are considered for the calculation of HRA exemption.
Mr X lives in Delhi and pays INR 20,000 per month as rent. He works as a salaried employee in Delhi, getting INR 40,000 as a basic salary and INR 15,000 as an HRA monthly.
Let us calculate the HRA exemption amount for Mr X using this information:
The minimum amount is for "Actual HRA received" of INR 1,80,000, which you can deduct from your annual taxable income. In this case, there will be no remaining amount for tax exemption from HRA (HRA received).
You can also use a calculator by the Income Tax Department for an easy and quick estimate of the HRA exemption amount.
There might be a situation where your employer does not provide HRA, or you are a self-employed tax-paying individual.
In such a case, taxpayers can still claim a deduction through HRA for self employed category under Section 80GG (Income Tax Act) provisions if they pay house rent. However, a taxpayer needs to fulfil certain conditions:
To claim a deduction under this provision, an individual must file a declaration in Form 10BA. It includes rent details like the amount, landlord's name, etc.
The income tax department will consider the minimum of the following amounts for deduction:
Here are a few points to consider for a deduction:
Understanding HRA is about unlocking a significant tax benefit to ease your financial burden. Optimising your HRA can help you with your financial planning.
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1. What is adjusted income in Section 80GG exemption calculation?Adjusted gross income, also known as (AGI), is defined as total income minus deductions or "adjustments" to your eligible income.
Adjusted income = Total income - long-term capital gain - short-term capital gain subject to tax at 10% - deductions under 80C to 80U* - income under section 115A or 115D.
*You should not include 80GG deduction in 80C to 80U. This adjusted income is before making a deduction under 80 GG.
2. Can you claim HRA if you are staying with your parents?
Yes, you can claim HRA by paying rent to your parents if:
It is also essential to know that your parent's total income will include your rental income. It will be taxable under the category 'income from house property'.
In cases where a parent's income falls under a lower tax bracket than you, it can help save taxes for a family as a whole.
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