House Rent Allowance (HRA) – How to Claim Maximum Exemption?

“Can I claim HRA if I am living with my parents?” is one of the most frequent questions that I get. In this post, I’m going to clarify that along with many other doubts you may have had or will have. I will tell you how to save as much tax as possible. All the things here will, of course, be legal ways to save tax.

Table of Contents

• What is HRA?
• How HRA is taxed
• How much of HRA can be claimed as an exemption?
• Can I claim the exemption if I’m living with my parents?
• Is it possible to claim both HRA exemption and housing loan interest and principal deduction?
• Why is my employer asking for the landlord’s PAN?
• Can I claim just rent paid as a deduction?

What is HRA?

HRA or House Rent Allowance is a part of the salary provided by employers in order to help their employees in regard to their rent payments. Normally your CTC consists of different components like:

    1. Basic salary.
    2. Dearness allowance.
    3. Other allowances like Special Allowance, Medical Allowance, House Rent Allowance, etc.
    4. Deductions like Professional Tax, Provident Fund, etc.

The HRA component varies from company to company and sometimes changes based on the role, too.

How HRA is taxed

The condition to claim HRA allowance as an exemption is that you must be living in a rented house, and you shouldn’t have your own house in the same city of work. So, if you own a house, then the whole of HRA is taxable as salary income.

How much of HRA can be claimed as an exemption?

The exemption available is the least of the following amounts:

1. Actual HRA received
2. 50% of (Basic Salary + DA) for those living in metro cities
3. 40% of (Basic Salary + DA) for those living in non-metros
4. Actual rent paid minus 10% of (Basic Salary + DA)

Let us understand this with the help of a scenario:

Mr. Shriyukth is a salaried individual. His Basic + DA is Rs. 4,20,000 per year. He pays Rs. 2,40,000 as rent. He receives an HRA allowance of Rs. 2,60,000 per year. Now, the maximum exemption available to him is the minimum of the following:

1. Rs. 2,60,000 – Actual HRA received
2. Rs. 2,10,000 – 50% of (Basic Salary + DA) for those living in metro cities
3. Rs. 1,68,000 – 40% of (Basic Salary + DA) for those living in non-metro cities
4. Rs. 1,98,000 (2,40,000 – 42,000) – Actual rent paid minus 10% of (Basic Salary + DA)

So, in this scenario, the maximum HRA exemption allowed to Shriyukth if he is living in a:

1. Metro city, then Rs. 1,98,000, i.e., actual rent paid minus 10% of (Basic Salary + DA).
2. Non-metro city, then Rs. 1,68,000, i.e., 40% of (Basic Salary + DA) for those living in non-metro cities.

Can I claim the exemption if I’m living with my parents?

Yes, given that you are paying rent to your parents. If you are not paying then you can start doing so by executing a rent deed. If one of your parents comes under the zero tax bracket then it’s beneficial to all parties involved. You pay rent and claim HRA exemption. Your parent shows it as house rent income without having to pay tax. It is advisable to keep the rent agreement and rent payment receipts.

Is it possible to claim both HRA exemption and housing loan interest and principal deduction?

Yes, absolutely, as long as the house for which you are claiming loan interest and principal deduction is not in the same city as your rented house. On rare occasions, it can be allowed, but only if you have a very strong reason to not stay in your own house.

Why is my employer asking for the landlord’s PAN?

When your rent paid for the year exceeds Rs. 1 lakh then your employer has to submit the landlord’s PAN details to the Income Tax department. And it is mandatory.

Can I claim just rent paid as a deduction?

Section 80GG deals with this particular deduction. But there are certain conditions to this. They are:

1. You are salaried or self-employed.
2. You have not received HRA at any time during the year for which you are claiming 80GG. Also, HRA component should not form part of your salary to claim 80GG.
3. You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of the office, or employment or carry on business or profession.
4. In case you own any residential property at any place, for which your Income from house property is calculated under applicable sections (as a self-occupied property), no deduction under section 80GG is allowed.
5. You will be required to file Form 10BA with details of the payment of rent.

Just like there is a maximum amount you can claim as an exemption in HRA, there is also a maximum amount of deduction you can claim Under Section 80GG.

The lowest of these will be considered as the deduction under this section- 

• Rs.5,000 per month
• 25% of the total Income (excluding long-term capital gains, short-term capital gains under section 111A, and Income under Section 115A or 115D and deductions under 80C to 80U. Also, income is before making a deduction under section 80GG).
• Actual rent less 10% of Income
  Do take benefit of this section – provided all conditions have been fulfilled by you.

So, now you know how you can save tax on your HRA allowance. If you have any doubts or need any clarifications, regarding this post or any other queries, do reach out to me through the Contact Us form, Comment box, or just text me on WhatsApp.

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