In India, one of the biggest factors that any family or earning person has to think about is house rent, which also forms one of the biggest expenses from a person’s monthly salary.
In fact, almost thirty percent of your salary is lost in paying just rent and associated payments! As long as you don’t have a house or property of your own, rent paid on having a roof over your head is a big headache, and the rent can range from four-digit figures all the up to the higher five-digit ones!
Of course, various other factors like which city you live in, which area in said city, the kind of house taken and the number of people sharing the rent plays a role on deciding this value. But there is a process – the house rent allowance – that allows you to save on rent paid. Here are 6 things you need to know about house rent allowance you should be aware of.
- What Is House Rent Allowance?
House Rent Allowance is an exemption that helps you lower the amount of rent paid, thus lowering your salary spend, but it depends on whether the house rent allowance is mentioned in your salary or not. It is basically an act of the employers paying a part of an employees’ rent. Anyone earning a salary and staying in a rented accommodation can avail house rent allowance under Section 10(13A). This means that unless there are special cases, self-employed professionals cannot avail this facility.
Again, it must be stressed that only if you live in a rented set-up can you avail the house rent allowance. This also includes the provision for availing this exemption if you live with your parents. However, this can only be done if your parents own the property, while they must also show the rent that you paid to them as part of their income tax return.
- What factors determine HRA?
- Your salary: The amount that you earn from your efforts at work
- Actual rent paid: The amount of rent paid to the landlord, as per the agreement
- HRA mentioned for and provided by employer: The amount that is to be exempted for your rental needs as given on your work contract
- Location of residence (metro or non-metro city): If you live in a metro city, then the house rent allowance share will be higher, as rent is higher in such cities, while it is lower in a non-metro city
- How much HRA is liable for exemption?
- Actual HRA received
- Any excess rent paid on an annual basis over 10 per cent of annual salary
- 50 per cent for residents of metro cities, 40 per cent for non-metro residents
From among these three criteria, the lowest value will be treated as tax exemption for House Rent Allowance.
- What documents are required?
As with every tax benefit, availing the house rent allowance requires some documents to be submitted:
- Rent agreement for current financial year to be submitted to employer
- Duly stamped rent receipt with all details like rent amount, complete address of property and signatures (landlords, tenants)
- If annual rent exceeds 1 lakh, landlords’ PAN card also needs to be handed in
- What if you forget to submit documents on time?
Even if you have forgotten to submit your house rent allowance before the set deadline, you can avail its exemption under when filing your tax returns. This is why filing tax return can be so crucial to your saving money and earning money that you are owed as part of the taxes you pay over the financial year.
- What if your employer does not account for your HRA?
If you live at a residence on a rental basis but your employer does not provide house rent allowance, you can still claim this exemption under Section 80 GG. But there are certain conditions:
- There is no previous house rent allowance received during the year for which you are making a claim
- You have been a salaried person, or self-employed
- You have to be part of a Hindu United Family (HUF) or an individual
- You have to submit Form 10BA, in which you declare that there is no Self-Occupied Property exemption on any house that you are claiming
- Will income tax exemption be allowed on both HRA and house loan?
Yes, income tax exemptions can be claimed on both these facilities. As long as you are living in a rented house with all necessary documentation, house rent allowance can be filed, while any other property that is under your name and is being serviced via a home loan can be written under income tax filing as long as the deeds and other documentation is provided.
Just like income tax return, house rent allowance can help you save some extra money that can be put to better use like investing in mutual funds or putting into fixed deposits! So, don’t waste time and get your HRA calculator out!
