Employed people claim HRA exemption under section 10(13A) of the Income Tax Act. But, its benefit is available only in the old regime of income tax. The rules for claiming it are already fixed.
Income tax return filing: Salaried taxpayers take great advantage of House Rent Allowance (HRA). They claim HRA exemption under Section 10(13A). If you have not selected the old tax regime in your proposed investment declaration in April, then your employer may have calculated the tax as per the new tax regime. This means that he must have calculated the tax without HRA and Section 80C deduction. Despite this, you can avail this tax exemption while filing income tax return. For this, you have to file the return by July 31.
Rules for claiming HRA
The rules for claiming HRA are already fixed. A taxpayer living in a metro city can claim 50% of his basic salary (plus dearness allowance) (40% in non-metros) or actual HRA or actuarial rent paid (minus 10% of basic salary and dearness allowance), whichever is less. You do not need to submit any document while filing Income Tax Return. However, you will have to keep the rent receipts and rent agreement with you. If you pay more than Rs 50,000 as house rent every month, then you will have to deduct TDS before paying the rent to the landlord.
Rules for self-employed taxpayers
If you are self-employed or HRA is not included in your salary structure, you will not get HRA exemption under section 10(13A). However, you will get relief under section 80GG. You can claim a deduction of up to Rs 5,000 per month, whichever is lower, of 25 per cent of your total income or the actual rent paid minus 10 per cent of your total income. However, if the house in which you live is in the name of your wife or minor child, then you cannot avail this relief. Even if the house in which you live is in the name of a Hindu Undivided Family (HUF), you cannot avail this relief.
You will get the benefit even if you live in your parents’ house
If you live in your parents’ house, then you are allowed to pay rent to them and avail HRA tax exemption. However, the rent you pay will be considered as your parents’ income. In many cases, parents are retired individuals and fall in lower tax brackets. This will reduce the tax payable on them. Parents may also fall in higher tax brackets. Therefore, before paying rent to parents and claiming HRA benefits, you must calculate the tax.
Rent income will be added to parents’ income
Don’t assume that your parents will not need to declare the rent paid on your behalf as their income. This is because you will have to provide their PAN while claiming HRA benefits. Since the Income Tax Department has the Annual Information Statement and the ability to track financial transactions, it has become difficult to hide any income.
