Session 6 on Finances| Part-1 | House Rent Allowance | Sagar Kakkala's World

                                                         Disclaimer:

This blog is prepared based on the taxation rules in India as of 2024, with specific reference to the Union Budget 2024-2025 (i.e., April 1, 2024 – March 31, 2025). The information provided is for educational purposes only.

It is highly recommended to consult the latest budget updates and seek advice from your Chartered Accountant (CA) or financial advisor before making any decisions related to HRA Deductions.

While there are minimal changes with every budget release, it is crucial to stay updated with the latest developments and amendments.

The Blog has been reviewed by CA - Sai Manoj

House Rent Allowance(HRA)

Let us understand its history in overview and how it works, People used to migrate from Different places to work and Rent used to be there expense, As a Result Employer used to pay them allowance for Rent, Now it has became a mandate to have HRA in Salary, Your Salary might consists of components like Basic Allowance(BA)+Dear Allowance(DA)+HRA and other miscellaneous components

Let us understand How HRA Deduction works,

Note: In this example, we will avoid other components for computation purpose

Let us assume that you have salary of 50k Per month, and you get HRA as 6k in it, Your Annual Salary is 50k * 12 = 6L, In that annual HRA is 6k*12 = 72k, Here Max HRA you can claim is 72k per annum

case1:

And let us assume you pay a rent of 8k per month, 8k * 12 = 96k

Though you are paying 96k as rent, You can only claim up to 72k in tax deduction, You will be taxed at 6L-72K= 5.28L tax slab

case2:

Let us assume , you pay a rent of 5k per month, 5k * 12 = 60k

here you can claim 60k in HRA, You can claim 60k here in tax deduction, You will be taxed at 6L-60k=5.4L tax slab

How HRA Max Deduction Component is Set?

HRA Component is set by taking 3 conditions, Whatever condition has lower, it will be your HRA component

let us learnt about conditions first and then we can understand with examples

1. Metro Cities under IT Act: For Delhi, Mumbai, Kolkata, and Chennai, 50% of Basic Allowance is considered for HRA.
2. Actual Rent Paid: Deduction is calculated as Rent Paid - 10% of (Basic Allowance + Dearness Allowance).
3. Actual HRA Component: The actual amount received as HRA from your employer.

Example:

let us say, You are living in Delhi , You have Basic Allowance of 6L per annum, DA of 2L per Annum and Actual HRA of 1.5L per annum, You pay rent of 4L per annum

Now lets put the conditions to work 

Condition 1 : 50% of BA = 3L will be your HRA

Condition 2:  4L - 10% of (6L + 2L) =  3.2L will be your HRA

Condition 3: Actual HRA = 1.5L will be your HRA

Since 1.5L is minimum of all 3 conditions, 1.5L will be your Max Limit for HRA Deduction

How HRA Tax Deduction can be claimed?

case1:

Since HRA is a component in FORM-16, it will be filed by your Employer, Employer requests for Rental Receipts or Proof of Payment of Rent from Employee, Proof can either be UPI Transactions, Bank Statements  

In case of Cash Payments, You need to Rs 1 Stamp as shown in below image, attached on an half A4 white paper with written note saying that Payment has been paid for rent for landlord and it must have signatures of you and your landlord

And as HRA is mentioned in FORM-16, it becomes duty of Employer to verify.

Employer requests the details of HRA on First Quarter.

Once Rental Receipts are submitted, You will get salary accordingly with Tax 

case2:

In case you missed submitting receipts , You will be taxed more, But you can claim this while filing ITR under section 10(13A) , But you need to have HRA in salary component.

Once you have claimed your rental receipts in ITR form, You will get your money that is deducted as tax, will be back in ITR returns.

case3:

In case, you don't have HRA component in salary but still paying rent , You can claim it under Section 80GG 

But here 80GG allows you to only claim up to 60k, But to claim you need FORM 10BA , it will contain details like your PAN Number, Your Landlord PAN number, Address and other necessary details

Additional Things to take care in HRA Deduction?

Take Rental Agreement of Rs50 Stamp Paper for every 11 months and Renew it. As 11 months comes under short Term category. This is useful in case you have to provide proofs to ITR. 

You can pay Rent to your Parents and claim HRA, But you have to file ITR for your parents as they are getting Rental Income.

example: If your mother is a house wife and has no other income apart from Rental Income, That Income can be tax free based on tax regime selected. 

If you are not paying actual rent but just creating receipts for deduction purpose, don't show rental payments more than 49,999/-, because if per month payment exceeds 50,000 then TDS implications will be involved.

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