HRA stands for House Rent Allowance, which is included in the pay of many salaried people. You must know that getting an HRA exemption from taxes is possible when choosing to live in a rented house. Under the HRA exemption section, i.e., Section 80GG, you may claim an exemption if you are self-employed or salaried. It is also possible for you to calculate the amount using an HRA calculator. This post will help you understand House Rent Allowance in detail, and you can file for its exemption.
What is HRA or House Rent Allowance?
An employee who lives in a rented house is eligible for a house rent allowance from their company. Hence, even if you work for yourself or your employer does not offer an HRA, you may still use this exemption. The catch is that if you reside in a leased home, your house rent allowance is not subject to tax.
So, those who get HRA from their company and own their home are not eligible to use the HRA exemption section's tax benefits.
How is Tax Exemption from HRA Calculated?
The least of the following amounts refers to the available deduction, and it can be calculated using an HRA calculator:
Actual HRA received
50% of [basic salary + DA] for those living in metro cities
40% of [basic salary + DA] for those living in non-metros
Actual rent paid must be less than 10% of basic salary + DA
Can You Claim HRA and Deduction on Home Loan Interest?
While the HRA does not impact your ability to deduct home loan interest, you may claim it successfully. Both are valid claims.
Use a free HRA calculator to determine if you are exempt from HRA. With the help of this calculator, you can determine how much of your HRA is taxable and how much is tax-exempt.
Tax Benefits of HRA
HRA deduction works under Section 10(13A) of the ITA, and it offers the following benefits:
The HRA rebate's ability to lower taxable income is its most significant benefit.
If you show evidence of paying rent, you can deduct HRA from your income tax filing even if you live with your parents.
If the home is not in the city of work or residence, you can still get the HRA tax advantage when making EMI payments on a home loan. If you own a home in the same city where you live and work, you must provide a convincing justification for why you cannot do so to qualify for the HRA exemption.
What Documents Are Required to Be Submitted for HRA Tax Exemption?
To get a tax exemption, you must provide your rent receipt. But you should also retain other paperwork as proof, like a lease and licensing agreement, a water bill, an electricity bill, a letter informing the cooperative organization of the tenancy, etc.
How To Save HRA?
You can pay your parents' rent if you live with them, and their income is minimal and does not put them in the tax bracket. They won't have to pay taxes; you may claim HRA this way. You can deduct the principal amount due under Section 80C and the interest paid under Section 24 if you have a home loan for your property but live in a leased residence. In this scenario, you can collect HRA and tax advantages on the mortgage. Make sure to use a free HRA calculator to know the precise amount.
What is an HRA certificate?
An HRA certificate is a document the government employee issues to support their claim for a home rent allowance when they cannot utilize a government residence per the established procedures.
Conclusion
The HRA tax exemption is one of the finest legal ways for salaried employees to reduce their tax burden. Therefore they should not miss the chance to use it. Ensure that you retain all legitimate supporting documentation. It is hard to prove rental payments are made in cash. Thus it is better to use a money transfer through a bank account. Section 10(13A) of the Income Tax Act states that the exemption amount is calculated. Use an accurate and cost-free HRA calculator available online if you find it challenging to compute the exemption amount.
