Salaried individuals living in rented accommodations can reduce their tax liability by claiming House Rent Allowance (HRA) exemption. While claiming full HRA benefits may be straightforward for some, it can become complex for employees who relocate or share rented premises. Infinity Housing explains common challenges and solutions for availing HRA exemptions.
Understanding HRA Exemption
HRA is a component of a salary structure that is partially exempt from tax under Section 10 (13A) of the Income Tax Act, 1961. To claim this exemption, salaried employees must submit rent receipts to their employer. If the annual rent exceeds Rs 1 lakh, quoting the landlord’s PAN is mandatory.
Challenges arise when you relocate, share a rental property, or pay rent multiple times in a year. Here’s how you can manage these scenarios:
1. Monthly Rent Above Rs 8,333 but Annual Rent Under Rs 1 Lakh
If you shifted mid-year and your monthly rent exceeds Rs 8,333 but total annual rent is below Rs 1 lakh, there is no need to quote the landlord’s PAN. PAN details are required only if annual rent exceeds Rs 1 lakh, as per CBDT guidelines.
2. Sharing Rented Premises With Friends
If you share accommodation, ensure the rent agreement lists all tenants and their individual contributions. Alternatively, a declaration from the landlord specifying your share is acceptable.
It is also advisable to pay rent via cheque or net banking, which serves as proof for HRA claims.
Tip: HRA exemption is calculated as the minimum of:
- Actual rent paid minus 10% of basic salary
- 40% of basic salary for Non-Metro cities (50% for Metro cities)
- Actual HRA received
3. Changing Homes Multiple Times in a Year
If you move residences during the year, maintain monthly rent receipts rather than submitting all at once at year-end.
Example:
- 6 months at Rs 8,000/month = Rs 48,000
- 6 months at Rs 7,000/month = Rs 42,000
- Total annual rent = Rs 90,000 → PAN not required
If total rent exceeds Rs 1 lakh, include PAN details for both landlords. Always prefer digital payments for proper documentation.
4. Claiming HRA and Home Loan Benefits Together
Employees can claim both HRA and home loan benefits simultaneously. For example, owning a home in Bangalore but staying in Delhi on rent does not restrict claiming either HRA or home loan deductions.
Sections 80C, 24(b), and 10(13A) allow simultaneous tax benefits for HRA and home loan interest, as updated in the Finance Bill 2019.
HRA claims can significantly reduce taxable income. Ensure you collect rent receipts, maintain payment proof, and submit proper documents to your employer. A written rent receipt from your landlord can be helpful for smooth processing.
Frequently Asked Questions
The HRA exemption is calculated as the minimum of:
- Actual HRA received
- Rent paid minus 10% of basic salary
- 50% of basic salary (for Metro cities) or 40% (for Non-Metro cities)
- Rent receipts (mandatory)
- Rent agreement (especially if sharing the premises)
- PAN of landlord (if annual rent > Rs 1 lakh)
- Digital payment proof (cheque/net banking)
You can file Form 16 or income tax return claiming the HRA exemption with supporting rent receipts to get the excess tax refunded.
Yes, there is no restriction. You can claim both HRA exemption under Section 10(13A) and home loan interest deduction under Section 24(b) or Section 80C simultaneously.
No, HRA exemption is only available if the employee themselves are paying rent for a house they occupy. Parents paying rent on behalf of the employee does not qualify.
HRA exemption is a powerful tool for tax savings when managed carefully. Proper documentation and timely submission ensure you get the maximum benefit without complications.
