THINGS YOU SHOULD KNOW ABOUT HRA AND TAX BENEFITS
House Rent Allowance (HRA), is an important
component in our salary slips, with upto 30% of basic pay (+DP) in metros. HRA
is the allowance given to meet the staff's expenses towards renting an
accommodation. Though very simple in concept and calculation, the tax
implications of the HRA, puzzles many a people. Here are 7 must knows, to help
you utilise this component of your salary in a tax efficient manner.
1)
Conditions you need to satisfy for a HRA exemption
Under
Section 10 of the Income Tax Act, certain exemptions are permissible on the
received HRA. To claim such exemptions one must satisfy the below conditions.
The
employee must not own the property in which he is residing.
Employees
must be paying rent for the accommodation in which residing.
Such rent
must be more than 10 per cent of his/her salary (see section 5).
if not,
an exemption cannot be availed if there is no HRA component in the salary.
2)
Calculating HRA for tax exemption
HRA tax
exemption is based on the HRA received, basic pay, actual rent paid as well as
if you stay in metro or non-metro. The amount exempted from the tax
calculations is the least of the following.
The
actual rental allowance paid by the employer as part of the salary.
The
actual rent paid, from which, 10% of the basic pay is deducted,
50% of
the basic salary if residing in a metro or 40% if in a non-metro.
3) HRA
benefits in case of rent paid to parents
If you
are residing in a house owned by your parents and you are paying rent to them,
technically, they are the landlords. You could, thus, claim an exemption,
provided they show the same transaction in their income tax returns.
Rent to
husband/wife are not permissible, as a husband and wife relationship is not
considered commercial and are also are meant to stay together.
4) Proof
to be submitted for HRA claims
If the
house rent paid is upto Rs. 3000 per month, then rent receipt is not mandatory.
Otherwise you will have to submit the rent receipt proofs to claim the tax
deduction. A one rupee revenue stamp affixed with the signature of landlord
receiving the rent, with other details of the rented address, rent paid and
name of the person who rents it, need to be mentioned on the receipt.
5)
Meaning of salary for HRA calculation
Salary
for HRA purposes is as follows:
Basic
salary (Basic Pay plus Dearness Pay)
Dearness
Allowance
Commissions
earned if any
This
salary will not include arrears of earlier years, received during the previous
year for which the claim is made.
6) You
could claim HRA exemption as well as a home loan tax benefit at the same time
HRA
exemption could be availed even if you are claiming a home loan tax benefit.
For a home loan, tax benefits are available towards the repayment of principal.
So, as long as you meet the criteria for a home loan deduction as well for a
HRA exemption, you could go ahead and claim both tax benefits. This could be
possible, in cases where you may be working in another city.
7) Period
in which HRA exemption can be claimed
The
period in which the HRA is actually received from the employer, must
necessarily pertain to the period in which the employee actually pays rent for
his accommodation. In case HRA is received for a period in which no rental
accommodation is occupied by the employee, exemption cannot be claimed.
Courtesy:
http://postalinspectors.blogspot.in
