How to claim House Rent Allowance Exemption in ITR Filing

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As you already know, House Rent Allowance (HRA) is a benefit that salaried employees receive as part of their salary.

Furthermore, you must also know that it can be used to reduce your Income Tax Liability while ITR Filing.

Know all the crucial details to claim house rent allowance exemption in ITR Filing through this article.

What is House Rent Allowance? 

House Rent Allowance (HRA) is an allowance given to you if you work and live in a rented house.

It helps you with the expenses of renting a place to live.

If you don’t live in a rented house, you cannot get this allowance.

House Rent Allowance is given to employees from employers and is part of their salary.

HRA for Self-Employed Individuals:

Even if you work for yourself and are not a salaried employee, you can still take advantage of deductions and tax benefits related to House Rent Allowance (HRA).

To do this, you can use a provision called Section 80 GG.

HRA for Salaried Individuals:

For people who are employed and receive a regular salary, there is a provision in the Income Tax Act known as Section 10 (13A), rule number 2A, which allows them to claim tax exemptions for House Rent Allowance (HRA).

Since HRA is a significant part of their salary, it’s essential for salaried individuals to follow their company’s policies when claiming these exemptions.

For more information and any queries, feel free to consult a professional CA from our team.

Why HRA is Important for ITR Filing

HRA can really help you pay less tax. Apart from that, Here are some reasons why you should claim HRA:

Reduces Taxable Income: 

The money you get as HRA is not fully taxed, up to a certain limit.

This limit depends on your salary, the rent you pay, and the city you live in.

So, you can subtract the HRA amount from your total income, which lowers the amount of tax you have to pay.

Increases Money in Hand:

If you claim HRA in your tax return, you will have more money left after paying taxes. This extra money can be used for savings or investments, or for anything you need.

Follow the Law:

Claiming HRA is legal, and it’s your right if you are eligible.

Following tax laws and claiming HRA in ITR Filing can prevent you from facing penalties or legal issues.

What is the maximum allowable HRA exemption?

The HRA exemption is calculated as the lesser of the following:

  • The actual HRA received.
  • 50% of the basic salary, including dearness allowance, for individuals residing in metro cities, and 40% for those living in non-metro areas.
  • The actual rent paid for the accommodation minus 10% of the basic salary, including dearness allowance.

When claiming a deduction under Section 80GG for House Rent, 

The limit will be determined based on the least of the following three options:

  • Rs. 5,000 per month.
  • 25% of the adjusted total income.
  • Actual house rent paid minus 10% of the adjusted total income.
  • The individual can choose the option that results in the least amount and claim that as the HRA exemption while filing their Income Tax Return.

Stepwise Process to Claim HRA in ITR Filing

  • Calculate HRA Exemption: Utilize the formula provided earlier to calculate your eligible HRA exemption amount.
  • Determine Taxable Salary: Subtract all the applicable exemptions and deductions from your gross salary to arrive at your taxable salary.
  • File Income Tax Return: Choose the relevant Income Tax Return (ITR) form that suits your income sources and file your tax return with the appropriate authorities.
  • Provide HRA Details in the Tax Return Form: Fill in the necessary information related to HRA in the tax return form. You will be required to enter the actual HRA received, as well as the minimum value among (a, b, c) from the HRA exemption formula mentioned earlier.
  • Attach Supporting Documents: Ensure you attach the required documents to support your HRA claim. These documents may include rent receipts, the rent agreement with your landlord, and Form 12BB, which is a statement of proof for claiming deductions like HRA.

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HRA Claim Eligibility in Different ITR Forms:

You can claim HRA using the following ITR forms:

  • ITR 1: Designed for individuals with income below ₹50 lakhs and ownership of one house property.
  • ITR 2: Intended for individuals with income from multiple house properties and capital gains.
  • ITR 3: Suitable for individuals earning income from business or profession.
  • ITR 4: Applicable to individuals with income from a presumptive business or profession.
  • ITR 5: Meant for partnership firms, LLPs, and AOPs.

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