How can salaried individuals claim HRA in ITR

Apart from the fixed component in your salary, your salary package contains an essential tax-free allowance known as the House Rent Allowance (HRA). This allowance differs from city to city and so does its exemption limit. So, claiming HRA in your Income Tax Return (ITR) is important while evaluating your tax liability. Let us see how you can use your rising rent expenses to claim exemptions and eventually reduce your tax burden.

What is HRA?

House Rent Allowance helps you meet your rent expenditure. This is provided by your employer for living expenses only in terms of rental property. Such expenses include your monthly rent and maintenance charges (if you are living in an apartment or a housing society).

The amount of HRA depends on your employer and the city that you live in. For instance, people living in metro cities typically get more HRAs than other cities.

How can I claim HRA?

To claim HRA, you must be a tenant. The Form 16 that you receive from your employer to file your taxes mentions that the HRA section is tax-exempt.

So, you must have valid rent receipts to prove such expenses. And the amount which you can claim as a deduction is different from what you actually pay.

To compute your claimable HRA, you need to determine three amounts. First is how much your actual HRA received from the employer is. Second, what would be the amount if you took 50% of your basic salary in the case of metro cities, or 40% of your basic pay, in the case of non-metro cities. Third is the amount which is equal to the rent that you paid minus 10% of your basic pay. Out of the three amounts, the lowest one is eligible for a deduction for salaried employees.

Let’s take an example to understand this clearly.

Miss Ruchi is a salaried employee in Bengaluru. Her base pay is ₹50,000 and she pays a monthly rent of ₹15,000. Her employer pays her an HRA of ₹12,000. So, the first amount for the calculation for HRA exemption is ₹12,000. The second amount is ₹25,000 (i.e., 50% of the basic salary). The third amount is ₹10,000 (i.e., ₹15,000 minus 10% of ₹50,000). And the lowest among the three is ₹10,000. Hence, in this case, only ₹10,000 can be tax-exempt.

What is the role of 80GG?

The 80GG section of the Income Tax Act is for people who do not come under the purview of the HRA. Like salaried individuals who do not receive HRA from their employer or self-employed individuals. This section is to relieve the extra tax burden for people outside of the salaried individuals. However, this is not for the people who live in their own homes. 80GG is specifically for rental accommodation.

Conclusion

HRA is a valuable benefit for employees to save on taxes. By claiming HRA exemption, taxpayers can significantly reduce their tax burden. This helps you, as a taxpayer, to increase your take-home pay. Thus, improving your financial well-being.