How is House Rent Allowance (HRA) calculated? What documents do I need to claim it?
Any employee who gets HRA can claim an exemption towards rental payment under Section 10(13A) read with rule 2A of the Income Tax Rules. It is essential that to claim HRA, the individual should be staying in a rented apartment and must actually pay rent for the house, which is occupied by them, and it should not be owned by the person claiming HRA. So, if you own a house and stay in it, the HRA is fully taxed. Further, the HRA exemption is restricted to the least of the following:
- Actual HRA received from the employer
- Excess of house rent paid over 10 per cent of the salary
- 50 per cent of the salary if one lives in a metro city
(Mumbai, Delhi, Kolkata and Chennai), or 40 per cent of the salary if one lives in non-metro cities.
You should know that salary includes dearness allowance, if terms of employment so provided, but excludes all other allowances and perquisites. To make your HRA claim safe, ensure that you have a notarised rent agreement with the landlord, which is shared with the employer. Maintain records of rent paid with rent receipts and copy of bank statements indicating rent payment. Lastly, it is your duty to furnish the landlord’s PAN details if the rent paid exceeds Rs. 1 lakh in a year. If the landlord does not have a PAN, a declaration to this effect should be furnished by the landlord.
According to a CBDT (Central Board of Direct Taxes) circular, for salaried employees receiving HRA up to Rs. 3,000 per month, the employer need not insist on production of rent receipts. Lastly, if you do not receive HRA as part of your salary and stay in a rented apartment, you can claim the deduction in respect of rental payments as per the specific formula of Section 80GG and subject to the conditions specified therein.
