Updated: Feb 4, 2021
All salaried people who live in a Rented house can claim House Rent Allowance for tax benefit. When any salaried person receiving HRA doesn't live in a rented house, then such HRA is fully taxable in the hands of the employee.
What if the employer is not providing HRA for rented accommodation?
In such a case, where an employee isn't receiving HRA, still he can claim a deduction for the rent paid under section 80GG. Not only salaried person, even self employed persons can claim deduction under 80GG.
For claiming deduction under 80GG, you must fulfill the following conditions:
You must be self employed or salaried.
No HRA is being received at any time during the year for which you are claiming deduction under 80GG.
Any residential property should not be owned at the place where you currently reside, or do your job or employment, or carrying on business or profession by you or your spouse or minor child or HUF (of which you are a Member).
"If you have any property in any other area then benefit of self occupied property can not be claimed for that property, it will be considered as deemed let out in order to calculate deduction under 80GG."
How to claim deduction under 80GG?
The least of the following will be considered as the deduction under this section:
a. Rs 5,000 per month; b. 25% of adjusted total income*; c. Actual Rent less 10% of adjusted total Income*
*Adjusted Total Income means Total Income Less long-term capital gain, short-term capital gain under section 111A (i.e short term capital gain on Shares or Unit of equity oriented Funds) and Income under section 115A (specifiied dividends and Interest) or 115D (Special provision for computation of total income of non- residents) and deductions 80C to 80U (except deduction under section 80GG).
Now, what if I am paying Interest on Home Loan and also receiving HRA for rented property? Can I Claim both?
Yes, you may claim the allowance as it has no bearing towards your home loan interest deduction. Both can be claimed.
Do I need to obtain anything from my Landlord?
Yes, you must have a lease agreement and also if you have taken a house on rent and are making a payment in excess of Rs 1,00,000 annually – remember to obtain the landlord’s PAN or you may lose out on the HRA exemption. Landlords without a PAN must be willing to give you a declaration refer circular No. 8/2013 dated 10 October 2013.
Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making the payment towards rent.
How to calculate allowable HRA?
Here's an example for that,
Mr. X, employed in Mumbai, has taken up an accommodation on rent for which he pays a monthly rent of Rs 15,000 during the Financial Year (FY) 2017-18 i.e. Assessment Year(AY) 2018-19. He receives a Basic Salary of Rs 25,000 monthly along with DA of Rs. 2000, which forms a part of the salary. He also receives a HRA of Rs 1,00,000 from his employer during the year. Let us understand the HRA component that would be exempt from income tax during the FY 2017-18.
So from above allowable HRA is least of below:
1. Actual HRA received : Rs.1,00,000/-
2. Rent Paid (15,000 x 12months) = Rs.1,80,000/-
Less: 10% of (basic salary + DA)
i.e 10% [(25000+2000)*12]= Rs.32,400/-
Total: (180000-32400) = Rs.1,47,600/-
3. 50%* of Basic+DA i.e (25000+2000) x 12 x 50% = 1,62,000
*(50% exemption in Delhi, Mumbai,Chennai, Kolkata. In Others state 40% exemption.)
Exempt amount is lowest of 1,2,3 i.e Rs.1,00,000.
Can I claim HRA when I live with my parents?
Yes, all you need to do is enter in to rental agreement with your parents and pay a monthly rent to your parents.