Live in a rented house? Here’s how you can save more tax

By Koustav DasIf you are a salaried employee, then you must have come across the term HRA (house rent allowance) in your monthly salary slips.

It is a component of the salary package provided by many employers to their employees to help them with the cost of renting a house. HRA is a part of the employee’s overall salary, and it is paid to the employee to cover their housing expenses.

For most employees, the House Rent Allowance is a part of the salary structure and is subject to full or partial tax deductions under the Income Tax Act. However, anyone who lives in rented accommodation and pays rent can save more tax by reducing the taxable portion of HRA.

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IndiaToday.in reached out to Abhishek Soni, co-founder & CEO of Tax2win, to understand how HRA is taxed and how people living in rented accommodations can reduce their tax outgo.

Soni said a part of the HRA is exempted subject to certain conditions, under Section 10(13A) of the Income Tax Act, 1961.

“Employees can claim a deduction of HRA under income tax from the gross salary that can help them lower their taxes – partially or wholly,” he added.

He, however, made it clear that HRA exemption is available only under the old tax regime, and anyone who opts for the new tax regime will not be able to claim it.

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He explained how the HRA tax exemption works and also shared several tips to reduce tax outgo.

HRA tax exemption depends on four components:

1) Salary (Basic salary + DA)

2) HRA component of the salary

3) Rent paid

4) Location of rental accommodation

How is HRA exemption calculated?

Soni said HRA exemption can be claimed against the amount paid by an individual for a rented house.

The exemption is calculated as the least of the following:

1) The total amount of HRA received

2) 50 per cent of salary (Basic salary + Dearness Allowance) if living in metro cities or 40 percent for non-metro cities

3) Excess of rent paid annually over 10 per cent of annual salary (Basic salary + DA)

Ways to claim HRA exemption

To claim the HRA exemption, individuals have to submit rent receipts or rent agreements to their employer, said Abhishek Soni.

They have to ensure that the documents have their landlord’s name, rent amount, and duration for which the rent is paid, he added.

“Also, the HRA received from your employer is fully taxable if you live in your own house or do not pay any rent,” Soni said.

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Anyone paying rent in excess of Rs 1 lakh per annum is required to mandatorily report the PAN of landlord or homeowner to the employer. Anyone staying with their parents and paying rent to them can also claim tax exemption under HRA.

“If you are living on rent in your city or job and own a house in another city, you may be eligible to claim both HRA (House Rent Allowance) and Home Loan Interest tax benefits, subject to certain conditions,” Soni said.

“You must submit Form 12BB to your employer to claim an HRA exemption. This form contains details of your rent paid, the landlord’s name, and the PAN of the landlord,” he added.

Individuals can also calculate the amount eligible for HRA exemption with the help of the HRA calculator available at many tax filing portals.

“Also, it is suggested to provide the required information timely in the income declaration form at the beginning of the year. This will save your time and money,” Soni said.

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