House Rent Allowance (HRA) Exemption - Explained

This document covers

1. What is HRA?
2. Amount of HRA Exemption
3. Conditions to avail HRA Exemption
4. Documents required to claim HRA Exemption
5. Availability of HRA Exemption under New Tax Regime
6. TDS implications on the payment of Rent
7. What if the employee is not getting HRA as a part of CTC?
8. Can the employee claim HRA benefit if he is having own house and paying Home Loan?

1. What is HRA?

House Rent Allowance is an employer-granted allowance for employee housing rent. HRA is usually included in employee CTC. Only rent paid amount can be claimed for a tax-free HRA exemption. HRA Allowance without actual rent paid is taxable. HRA does not cover maintenance. Learn more.

2. Amount of HRA Exemption

HRA given by employer is exempted to the extent of least of the following.

Employees are not required to pay tax on the HRA which is exempt to the extent of least of above. However, the employees are required to pay tax on balance amount.

Use    HRA Tax Calculator   to compute the HRA Exemption

Note: HRA exemption is available to the taxpayers who are actually paying the rent. HRA exemption is not available to the taxpayers who are living in own house or who are not paying any rent.

3. Conditions to avail HRA Exemption

• The employee should be in receipt of HRA (House Rent Allowance) from the employer.
• The employee should be paying the rent.

4. Documents required to claim HRA Exemption

Employees are required to have the following documents to claim HRA Exemption

1. Rental Agreement
2. Rent Receipts
3. PAN of the landlord if the rent paid exceeds Rs 1 lakh per year

Note: It is recommended to make the rental payments through Banks as it might help the taxpayers to prove the genuineness of the transactions to the Income tax department if any query comes in future.

5. Availability of HRA Exemption under New Tax Regime

If the employee is opting for New Tax Regime u/s 115BAC of income tax act, he is not eligible to claim HRA exemption as New Tax Regime does not contain any deductions.

6. TDS implications on the payment of Rent

There are TDS implications on the payment to Rent. However, the TDS provisions will depend on the residential status of the landlord

1. If the landlord is Resident: If the rent paid by the employee exceeds Rs 50,000 per month, he is required to deduct TDS @ 5% and file Form 26QC as a part of compliance. Non-Compliance with this provision will result in queries from the Income Tax Department. This provision is applicable from 01st June 2017.

   NOTE: As per Finance Act 2024, the TDS needs to be deducted on monthly rent w.e.f 01st Oct 2024 is 2%.

   Refer   TDS on Payment of Rent by certain individuals / HUF  for more information.

   
   
2. If the landlord is Non-Resident: The employee is required to deduct 31.2% TDS on the monthly rental payments. He needs to file the TDS return in Form 27Q as a part of compliance.

   Refer TDS on Payments for more information.
   
   Also you may refer  tax residential status calculator  to know whether your landlord (owner) is a non-resident or not?

7. What if the employee is not getting HRA as a part of CTC?

If the employee is not in the receipt of HRA from the employer, he cannot claim HRA exemption u/s 10(13A). However, these employees can claim the rental deduction u/s 80GG of Income Tax Act 1961. The employees can claim the deduction to the least of the following.

1. Actual Rent paid (-) 10% of the total income of the taxpayer before allowing the deduction.
2. 25% of total income (Gross income-deduction u/s Chp VIA except 80GG)
3. 5000 per month

Refer Deduction in respect of Rent Paid (80GG) for more information.

8. Can the employee claim HRA benefit if he is having own house and paying Home Loan?

Yes, the employee can claim HRA even if he is having own house and claiming home loan interest u/s 24. However, the employee should not stay in his own house while claiming HRA. He should be paying the rent to the landlord.