House Rent Allowance (HRA) is best tax saving tools available to employees. With these you can save upto 50% of your salary if you reside in Metro (40% of your salary if you reside in non-metro).
As per income Tax act, for calculation House rent allowance least of the following is available as deduction :
- Actual HRA received
- 50% / 40%(metro / non-metro) of basic ‘salary’
- Rent paid minus 10% of ‘salary’.
Basic Salary for this purpose is basic+ DA forming part+ commission on sale on fixed rate.
Metro Cities: Cities Like, Delhi, Mumbai, Chennai and Kolkata constitutes Metro.
Non Metro Cities: All cities other than these are non-Metro. So if you resides in cites like Gurgaon, Faridabad, Bangalore, Hyderabad, Pune, Chandigarh, Ahmedabad etc it would constitutes as Non metro and only 40% deduction will be allowed.
If actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.
Important point before claiming HRA: It is generally seen that employees in order to save tax, give HRA to their father, mother or wife.
1) You can give HRA to your parents but make sure that your parents actually own the house, for which you are paying the rent. ie the registry is the name of parent.
When paying rent to parents ensure that parents include the rental income in their total income while filing their tax return.
2) Avoid paying rent to your wife, if she is not owner of the house for which you are paying the rent.
2 b) If your wife has purchased house from her own income then you an consider paying rent to her.
3) Make sure to whom so ever you are paying rent, is actually filing income tax return and showing this rental income in his / or her income.
PAN No of Landlord compulsory if Rent Exceeds Rs 1,00,000/- in a year
Que: Can I claim both HRA and Housing loan benefit?
Income tax benefits for both home loan and HRA are governed by different sections of income tax act.
As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan.
Make sure that you include rental income from the property you own under income from house property.
Que: I am paying rent in cash for Rs 15,000/- but my Landlord is not providing me with PAN copy. What should I do?
Unfortunately, There is no legal way you can force landlord to provide pan copy.
to claim full HRA tax benefit.
Way out in such case where landlord is not providing PAN copy is:
- Look for new landlord and before moving to new home check if he is ready to provide pan copy.
- You can look for any friend or relative who is taking housing loan interest benefit and has actually not leased out his property. If housing loan interest is high and he will be showing his property as deemed to be let out. In this case he will get name of tenant and you will HRA benefit.
It will be win – win situation for both of you.