House Rent Allowance or HRA is an important part of the salary of a salaried employee. It is paid by the employer as a type of remuneration for the employee’s accommodation expenses. HRA also constitutes a major part of an employee’s salary and hence can attract a fair amount of tax if the available HRA income tax exemption is not availed. Moreover, not only employees, but even self-employed individuals can also claim HRA deductions. We will discuss everything related to HRA deduction and how you can claim it.
What is House Rent Allowance?
HRA allowance exemption means the amount of tax deduction that a salaried employee or self-employed individual can claim from his/her annual income while filing ITR. The HRA deduction helps the individual to lower his/her annual income and save some tax.
HRA Deduction for Salaried Employees
House Rent Allowance or HRA for salaried employees is defined under Section 10 (13A) of the Income Tax Act. Further, rule 2A explains the amount of exemption admissible under the section.
Calculation of HRA Exemption - Salaried Employees
Salaried individuals can claim a tax deduction of the least of the following under the HRA exemption section:
- Actual rent paid
- Actual amount of HRA received from the employer
- In metro cities: 50% of the salary (basic salary + DA)
- In non-metro cities: 40% of the salary (basic salary + DA)
- Actual rent amount should not be more than 10% of the salary (basic salary + DA)
Let us understand this with an example:
Suppose Ashok lives in a metro city where he earns a salary (basic salary + DA) of Rs 50,000 per month and pays a rent of Rs 15,000. Besides, he gets an HRA of Rs 20,000 per month. Now let us understand his case with the following table:
| Condition | HRA limits (maximum tax HRA exemption Ashok can claim) |
| Actual rent | Rs 15,000 (least amount) |
| Actual amount of HRA received from the employer | Rs 20,000 |
| In metro cities: 50% of the salary (basic salary + DA) | 50% of salary = Rs 25,000 |
| Actual rent amount minus 10% of the salary (basic salary + DA) | 10% of Rs 50,000 = Rs 5,000 Now, Rs 15,000 (least amount in the table) - Rs 5,000 (10% of the salary) = Rs 10,000 |
| HRA Exemption Amount | Rs 10,000 |
| Taxable HRA Amount | Rs 15,000 - Rs 10,000 = Rs 5,000 |
Hence, house rent allowance is exempt from tax = Rs 10,000 per month, i.e; Rs 1.2 lakh in the financial year
How to Claim HRA Tax Deduction?
The process of cleaning tax exemption on HRA is simple. You just need to submit the rent receipts while filing the ITR, which will serve as proof or record for the tax exemption that you are claiming. Note that if the rent paid is over Rs 1 lakh in the financial year, you will also have to submit the landlord’s PAN details.
HRA Deduction for Self-employed Individuals
Although self-employed individuals are not eligible to use the tax benefits given under the provisions of section 10 (13A), they can enjoy similar tax benefits and claim exemptions under section 80GG of the Income Tax Act.
Calculation of HRA Exemption - Self-employed Individuals
Self-employed individuals can claim a maximum tax deduction on HRA in the least of the following amount:
- Rs 5,000 per month
- 25% of the adjusted total income
- Actual rent minus 10% of the adjusted total income
Let us understand this with an example:
Suppose Ashok pays a rent of Rs 5,000 per month and his adjusted income is Rs 4 lakh per annum. The maximum amount he can claim as tax deduction can be understood from the table:
| Condition | Maximum tax exemption Ashok can claim |
| Rs 5,000 per month | Rs 5,000 (Rs 60,000 per annum) |
| 25% of the adjusted total income | Rs 1 lakh |
| Actual rent minus 10% of the adjusted total income | Rs 60,000 - 10% of Rs 4 lakh = Rs 20,000 |
| Satisfied Condition | Rs 20,000 |
So Ashok can claim a tax deduction of Rs 20,000 per annum because it is the least amount among all the cases.
How to Claim HRA Tax Deduction?
Just like the case of the salaried employed, the self-employed individual also needs to submit all the rent receipts while filing ITR. Also, in case the annual rent is over Rs 1 lakh, the taxpayer also needs to furnish the PAN details of the landlord. Additionally, the self-employed individual also needs to file a declaration in Form 10BA.
Condition Under Section 80GG of Income Tax Act
In order to claim a tax deduction on rent, the self-employed person must meet the following conditions:
- The individual should not be receiving any HRA from his/her employer
- He must have filed a declaration in Form 10BA
- The house in which he is living and paying rent should not be owned by himself, his spouse, minor child, or his HUF
- The individual should not be owning any residential property for accommodation in his occupation whose value is determined as per the provisions laid under Section 23(2)(a) or Section 23(4)(a)
Can salaried individuals who are not receiving HRA from their employers claim tax deductions?
Yes, in case a salaried employee does not receive HRA from his/her employer, he/she can still claim tax deductions as per the provisions laid down in Section 80GG of the Income Tax Act.
I live in a house owned by my parents, how can I enjoy HRA tax exemption in this case?
You can sign a rental agreement with your parents and start paying rent to them. You can thus show the rent paid while filing ITR and enjoy tax benefits on the same. However, note that this would be counted as income from rent on the side of your parents. Thereby, you will enjoy actual tax benefits in case your parent’s net annual income is not taxable.
What is the maximum tax deduction on rent that I can claim in Section 80GG?
You can claim a maximum tax deduction of Rs 5,000 per month, or Rs 60,000 every year in case you are self-employed or salaried but do not receive any HRA from your employer, under Section 80GG.
Can I claim tax deductions on Dearness Allowance (DA) under Section 10 (13A) or Section 80GG of the Indian Tax Act?
No, both Section 10 (13A) and Section 80GG of the Indian Tax Act deal with tax deductions that can be claimed by salaried individuals on HRA and self-employed individuals on rent paid respectively.