1. What is House Rent Allowance ?
House Rent Allowance is basically an allowance given by employer to meet the employee’s expenses towards renting an accommodation.
2. How can I use my House Rent Allowance to save income Tax?
Under Sec. 10(13A) Rule 2A of Income Tax Act, an individual can claim House Rent Allowance exemptions if following 3 conditions are satisfied:
House Rent Allowance is received as part of the salary package
If one is staying in a rented accommodation and paying rent for it.
Rent paid is more than 10% of the salary.
Now the next big question is how to calculate House Rent Allowance eligible for exemption so we will go step by step……
3. How do we define the term “SALARY” for calculating House Rent Allowance?
Salary for House Rent Allowance= Basic Pay + Dearness Allowance + Commission ( if received as a fixed percentage on turnover as per terms of employment).
4. How to Calculate House Rent Allowance eligible for tax exemption?
Calculating House Rent Allowance for tax exemption involves three aspects. The least of the below three is exempt from tax.
Amount Received during financial year for House Rent Allowance
Less : Exemption u/s 10(13A) Least of the followings :
(a)Actual Amount Received.
(b)50%(For Metro cities) / 40% of Salary (for other places)
(c) Rent paid less 10% of salary
5. What Documents are required To Claim House Rent Allowance Exemption?
To claim House Rent Allowance exemption, you need to submit following proofs
(a) Rent Receipts: Normally 2 Rent receipts are sufficient, one for the beginning of Financial year and 2nd towards the end of Financial year. Some organizations ask rent receipts for all 12 months and others may demand 1 rent receipt for each quarter.
(b) If per month rent is more than Rs 8,333 then Rental Agreement is mandatory.
(c) If rent paid is more than Rs 8,333 per month then you require PAN details of the landlord Details like name and address of landlord, address of rented premises, rent amount and month for which rent is paid should be clearly written on rent receipts.
Tax Saving Tip: – Rent can also be paid to parents, grandparents not having taxable income to save income tax as they act as landlord but the house should be in the name of person as shown in rent receipt. Rent to spouse is not permissible, as a husband and wife relationship is not considered commercial.
Don’t get House Rent Allowance in salary but paying rent.
Well Section 80GG can help for tax saving
Section 80GG – In case you are not in receipt of House Rent Allowance but still paying rent then also you can claim deduction for the rent paid as per section 80GG under Income Tax Act, 1961.
Deduction allowed is Least of the following:–
(i) Rent paid minus 10% of adjusted total income.
(ii) 25% of adjusted total income.
(iii) Rs. 2,000 p.m.
Adjusted Total income : Gross Total Income as reduced by :
(a) Long term Capital gain, if any, included in the Gross Total Income
(b) all deduction under chapter VIA (Section 80CCC to 80U) other than the deduction under this section.
(c) Any income referred to in Sections 115A to D included in the Gross Total Income.
1) Need to pay rent, and for your own accommodation, not for your parents’ accommodation.
2) Need to declare that you are paying the rent. This has to be done by filling out and filing form 10-BA.
3) The house is to be situated within specified municipal areas. However, all major cities are a part of the specified municipal areas.
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