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Unlock Your Savings: House Rent Allowance (HRA) Exemption Explained Simply with Examples

Unlock Your Savings: House Rent Allowance (HRA) Exemption Explained Simply with Examples

Ever wondered about 'House Rent Allowance' on your payslip and how it can save you money on taxes? At FilingWorld.in, we simplify complex financial topics. HRA exemption is key to maximizing your take-home pay!

What is HRA?

HRA is a salary component towards rented accommodation. A portion can be claimed as an exemption under Section 10(13A) of the Income Tax Act, reducing your taxable income. This means less tax out of your pocket!

Who Can Claim HRA Exemption?

  • Salaried Employees: Must receive HRA and live in rented accommodation.
  • Paying Rent: You must genuinely pay rent; not applicable if living in your own house.
  • Proof Required: Furnish rent receipts. Landlord's PAN is needed if annual rent exceeds Rs. 1,00,000.

Calculate Your HRA Exemption (with Examples!)

The HRA exemption is the least of these three amounts:

  1. Actual HRA received from employer.
  2. Actual rent paid minus 10% of Basic Salary + Dearness Allowance (DA).
  3. 50% of Basic Salary + DA (for Delhi, Mumbai, Kolkata, Chennai) or 40% for other cities.

Example 1: Metro City (Mumbai)

Mr. Sharma's Basic + DA: Rs. 50,000/month
HRA received: Rs. 25,000/month
Rent Paid: Rs. 20,000/month

  • Actual HRA: Rs. 25,000
  • Rent Paid - 10% Basic+DA: Rs. 15,000
  • 50% Basic+DA: Rs. 25,000

Exemption: Rs. 15,000

Example 2: Non-Metro City (Bengaluru)

Ms. Priya's Basic + DA: Rs. 40,000/month
HRA received: Rs. 18,000/month
Rent Paid: Rs. 15,000/month

  • Actual HRA: Rs. 18,000
  • Rent Paid - 10% Basic+DA: Rs. 11,000
  • 40% Basic+DA: Rs. 16,000

Exemption: Rs. 11,000

Important Points:

  • Cannot claim HRA if paying rent to your spouse.
  • Can claim if paying rent to parents (parents must declare income).
  • Retain proper rent receipts.

Understanding HRA exemption is a smart financial move. Don't leave money on the table! For more tax planning and compliance guidance, visit FilingWorld.in. We're here to help your finances thrive!

FAQs
Only salaried individuals who receive HRA as part of their salary structure and actually pay rent for a residential property can claim this exemption. You can claim HRA even if you live with your parents, provided you have a formal rental agreement and can show proof of rent payments.
The amount of HRA exemption is the lowest of the following three: <br> 1. Actual HRA received from your employer. <br> 2. Actual rent paid minus 10% of your salary (basic salary + dearness allowance). <br> 3. 50% of your salary (basic + dearness allowance) if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai) or 40% for a non-metro city.
If you are a salaried individual who doesn't receive HRA or are a self-employed professional, you can still claim a deduction for rent paid under Section 80GG. This is subject to different limits, and you cannot claim both HRA and 80GG in the same year.
Yes, you can claim HRA even if you own a house, provided that you are living and paying rent for an accommodation in a different city from where your own property is located.