All you wanted to know about HRA exemption (with latest amendments)

HRA Exemption

HRA is an important component of salary income. It is a fixed, Pre determined allowance (generally a percentage of basic salary) that is given to employee in addition to the basic salary. As the name suggests “House Rent allowance” is meant to support the house rent which an employee pays, and thus this is exempted to some extent by Income tax authorities. HRA exemption is not available to those who live in their own house, as they are not paying rent to anyone. This article is about HRA exemption, in what scenarios one can claim exemption and How to claim the same.

How to calculate HRA Exemption amount?

As explained above, HRA exemption can only be claimed by employee if he’s living in the rented accommodation and is paying regular rent. Tax treatment of HRA is as below:

This calculation requires 4 information – the city you live in, the basic salary that you receive, what rent you pay and  what is the actual HRA benefit that you get. HRA exemption amount will be least of the below 3 options:

  1. 50% of basic salary where residential house is situated in a Metro city like Delhi, Mumbai, Kolkata or Chennai, Else 40% of basic salary where residential house is situated at some other place.
  2. Actual Rent Paid minus 10% of basic salary.
  3. Actual HRA Received

Here Basic salary means Basic+ Dearness allowance.

Let’s Understand the HRA exemption clause with an example:

Ramesh lives in a rented accommodation in Delhi and Pays monthly rent of Rs 20000/-. His Annual salary package details are as under. What would be the HRA exemption limit in this case?

Basic – Rs 480000

HRA – Rs 240000

Medical Allowance – Rs 15000

Special Allowance – Rs 200000

Solution:

As Ramesh lives in a metro city, so the HRA exemption limit would be the least of following:

  1. 50% of basic = Rs 240000/-
  2. Actual Rent Paid minus 10% of Basic = (20000*12-48000)=192000/-
  3. Actual HRA Received = Rs  240000/-

 The Least of the above is Rs 1.92 lakh. Out of total HRA received Rs 1.92 lakh will be deducted and remaining will be added in the gross taxable income and will be taxed as per income tax slab one falls in.

Other Important points to note to claim HRA exemption:

  1. If you are living with your parents, you can pay rent to them and claim HRA exemption. But in this case your parents have to show this rent as their income and pay tax accordingly.
  2. You cannot pay rent to your spouse and claim exemption.
  3. Your city of residence will be counted to calculate HRA exemption limit. For e.g if you work in a metro city but reside in Non metro city then in this case you will be entitled to 40% benefit as explained above.
  4. If you own a house in one city, but resides in other city due to employment reasons, you are eligible to claim HRA exemption. If your own house is on loan, then you can also claim home loan tax benefits along with HRA benefit.

How to claim HRA exemption?

You need to submit the Actual Rent receipts to your employer as a proof of rent payment. Many companies ask for Rent agreement also.  On the rent receipts basis employer calculates the HRA exemption benefit and deducts TDS accordingly. Here’s one loop hole which employees generally takes advantage of. Till now, if the rent payment was below Rs 15000/- there’s no requirement of submitting landlord’s PAN number along with Rent receipts and thus up to that prescribed amount employees sometimes furnish Fake rent receipts to claim for HRA exemption.  Let me explain this with an example:

Below are the details of Ramesh’s Monthly salary slip.

Basic: Rs 30000 ; HRA: Rs 12000

His place of Residence is Chandigarh and he pays monthly Rent of Rs 10000/-

So technically his HRA exemption calculation would be as follows .

  1. 40% of basic = Rs 1,44,000 (40%*360000)
  2. Rent paid minus 10% of basic =  Rs 84000 ( 120000-36000)
  3. Actual HRA = Rs 1,44,000

Least of above 3 is Rs 84000/-, so for Ramesh HRA Exemption amount should be Rs 84000/-. But he furnished Rent receipts of Rs 14500/- per month to employer. This has increased his HRA exemption amount to Rs 138000/- (as per calculation in step 2). So where Rs 60000/- would have to be added in his Gross total income, due to the fake rent receipts only Rs 6000/- was actually added.

Latest amendment announced in October’2013

But now CBDT is trying to plug this loop hole and thus from FY 2013-14 all salaried tax payers who claim HRA exemption will now have to report their landlord’s PAN number if the total Rent in a year exceeds 1 lakh. This means the limit which was earlier Rs 15000/- has been reduced to Rs 8333/- per month. In case landlord does not have PAN number, then employee has to submit a declaration by landlord stating the same along with his name and address. This will serve dual purpose for IT authorities, as they can keep a check on landlord if he’s paying taxes on this income or not and also this will act as a deterrent to the employees in tax evasion. So now onwards whenever you furnish rent receipts to your employer which is more than 1 lakh a year, don’t forget to mention the PAN Number of your landlord.

Did you find the details on HRA exemption useful? Do share your views. For any query you may ask in comments section below.

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13 COMMENTS

  1. Nice article.. with easy explanation..

    We buy water via lorry service (Rs.1500/month), can we provide the receipt of it along the rental.. or is there any other way…

  2. I started paying rent from Sept 2013. p.m 12500.

    Total rent for the year is not exceeding 100000. (12500*7=87500).
    Do i need to provide PAN of my landlord.

    • Shilpa amendment puts the condition on annual rent, there’s no mention of monthly rent, so as your annual rent is going to be less than Rs 1 lakh then technically you don’t need to provide PAN number of land lord for this year. But it is better if you have it to avoid complication in future (if any).

  3. i got 44000 fixed payment plz give me adivac
    1. can i claim HRA and housing loan tax benefits
    2.how much amount are eligible for HRA

    • Sunil, to claim tax benefit , you should be getting HRA at first place. HRA amount should be clearly mentioned in your salary slip. If this is there then you are eligible for tax benefit as per the calculations mentioned in the article.
      You can claim the Housing loan tax benefits and HRA exemption only if you are living in another house , other then for which you are claiming housing loan tax benefit. Do go through the article in detail to have understanding on this point.

  4. Sir, The property is owned by me, and I am still paying EMI, do I get HRA exemption if I make rent agreement as paying rent to my mom (in cash). but I am getting deduction of my emi, principle amount interest. so make necessary comment please.

  5. Hi Manikaran,

    I’m working in Bangalore and staying in a PG. On demanding for rent receipts, the PG owner gives lame excuses that for staying in a PG Accommodation you don’t get rent receipts. It’s just like Hotel etc. and bla bla bla. I’ve been staying there since Aug-15. How can I take action against him so that he provides me with all the rent receipts and also his PAN number (if required).

    Regards,
    Kushal

    • before taking any action you need to be sure that after that you may not be having smooth relations with your landlord and you may need to pack your bcgs and move to some other place.
      He is not providing you rent receipts because he might not be reporting this income in his IT return. But not having rent receipts and his Pan card will cost you as you may get penalise by more rent. So to start with request him and explain your situation. If even after that he doesn’t agree then you may write to the IT assessing officer of your area to take necessary action against him. You can also approach consumer court for this, as you are paying for using his accomodation and he is providing you taxable service.
      I am not sure if you can complain to police against this.

  6. Hi Manikaran,
    I am staying in a PG accommodation at Gurgaon. My service provider provides credit bill on monthly basis for room rent worth INR 22,000/-.
    His PAN card number is also available on credit bill.
    Can I use this credit bill as a prrof for HRA exemption?

    Regards,
    Sanjay

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