Claiming HRA (House Rent Allowance) exemption is one of the most common ways for company employees in India to save on taxes. If you are paying rent for the accommodation and staying in a rented house, you can claim HRA exemption. This can significantly reduce your taxable income and lower your tax liability.
HRA is a component of the salary that is provided by the employer to the employee to meet the expenses of the rented accommodation. The amount of HRA received is included in the employee’s salary and is subject to tax. However, the employee can claim a deduction from the taxable income, under Section 10(13A) of the Income Tax Act, for the HRA received.
To claim HRA exemption, you need to submit the following documents to your employer:
- Rent receipt: You need to provide a rent receipt to your employer as proof of the rent paid.
- Landlord’s PAN card: PAN card of the landlord is mandatory to claim HRA exemption.
- Address proof: You need to provide address proof of the rented accommodation to your employer.
The amount of HRA exemption that can be claimed depends on the following factors:
- Actual HRA received: The actual HRA received from the employer is eligible for exemption.
- Rent paid: The amount of rent paid in excess of 10% of the basic salary is eligible for exemption.
- 50% or 40% of basic salary: The least of the following is eligible for exemption: (i) Actual HRA received, (ii) Rent paid in excess of 10% of basic salary, (iii) 50% of basic salary (if you are living in a metro city) or 40% of basic salary (if you are living in a non-metro city).
It is important to note that if you own a house and are receiving HRA, then you are not eligible to claim HRA exemption. Also, you cannot claim HRA exemption if you are living in a house which is owned by your spouse or your minor child.
In addition, if you are living in a house on rent and also paying EMIs for a house which is under construction, you can claim the interest paid on the home loan as a deduction under Section 24 of the Income Tax Act.
It’s always advisable to keep all the necessary documents ready and consult with a professional tax consultant or a chartered accountant for proper guidance and to claim the maximum HRA exemption possible.
In short, HRA exemption can be a great way for company employees in India to save on taxes, if you are paying rent for the accommodation and staying in a rented house. It can significantly reduce your taxable income and lower your tax liability.