How to Claim HRA in Tax Return?

House Rent Allowance or HRA is a commonly received allowance, especially among the salaried. If you are paying rent for your accommodation (This can be to parents or even the landlord), you can claim a tax exemption on rent paid.

If you are a first-time tax payer, there’s good news. ITR-1 is now in sync with Form-16. (You and salaried people receive Form-16 from the employer as a TDS certificate). Now, all you have to do is copy details from the Form-16 and paste it in ITR-1 Form, when filing taxes.

What if you have forgotten to submit the important documents like rent receipts or the rent agreement to the employer? Well, No Problem. File income tax returns and claim the HRA tax-exemption.

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How To Claim HRA in Tax Return?

How to Claim Tax Exemption on HRA?

Let’s say you have submitted the rental agreement to your employer. You can see the tax-exempt portion of HRA in Form-16. Now, the entire HRA received from the employer, in the Financial Year 2018-19 may be exempt from tax, or only a part of it is tax-exempt, depending on the conditions of HRA exemption.

Note: Submit PAN of the landlord if the annual rent exceeds Rs 1 Lakh.

See Also: HRA Tax Calculation

The HRA portion which is taxable is added to your salary. (This is as per provisions of Section 17(1) under the ‘Gross salary’ head). The tax-exempt portion of HRA is shown separately under the head “Allowances”. This is to the extent which is exempted under Section 10.

• Taxable Part of the HRA:

The taxable portion of HRA is shown under “Salary as per provisions in Section 17(1).”  

• The Tax-Exempt Part of the HRA

You can report the tax-exempt part of the HRA under the head, “Allowances exempt u/s 10' in the ITR 1 Form. Select Section 10(13) from the drop down menu.

See Also: How to Save Tax?

What If Rental Agreements are Not Submitted to the Employer?

Let’s say you have forgotten to submit rental agreement to the employer. You must manually calculate the tax-exempt part of the HRA received. This is because the employer would have assumed that the entire HRA paid to you (This is what your Boss has given you as HRA) is taxable.

How to Calculate the Tax-Exempt Part of HRA?

Let’s say you are living in a rented apartment in Kolkata. You pay a monthly rent of Rs 15,000. The monthly basic salary is Rs 50,000 and your employer pays monthly HRA of Rs 20,000. What is the tax-exempt part of the HRA?

Conditions:

Condition 1: Actual HRA received from employer

Condition 2: Rent paid less 10% of salary

Condition 3:  50% of basic salary if metro and 40% of basic salary if non-metro.

The lowest among the three conditions is tax-exempt.

• Actual HRA received by you from the employer. (This is Rs 20,000 * 12 = Rs 2.4 Lakhs).
• This is 50% if you are residing in a metro city. Kolkata. (This works out to be Rs 50,000 * 50% *12 = Rs 3 Lakhs).
• Rent paid less 10% of salary = (Rs 15,000 – 10% of Rs 50,000) * 12 = Rs 1.2 Lakhs.

You have to consider the lowest among the three which is Rs 1.2 Lakhs. This is the tax-exempt portion of the HRA.

The remaining Rs 1.2 Lakhs (This is actual HRA received of Rs 2.4 Lakhs  –  tax exempt portion of Rs 1.2 Lakhs). The taxable portion of HRA is Rs 1.2 Lakhs.

See Also: Claiming Tax Exemption On Both Home Loan And HRA?

Points to Remember When Claiming HRA Tax Exemption:

• You don’t have to send any documents to the IT Department. But, the IT Department can ask for proof of HRA exemption claimed.
• If your annual rent payment exceeds Rs 1 Lakh, the tax department will ask for PAN details of your landlord.
• If you are paying rent to parents, make it through banking channels. Make sure these payments are reflected in parent’s ITR.

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