House rent allowance (HRA) can be a key tax-saving component of a salaried employee. However, tax exemption on this allowance is available only under the old tax regime, meaning employees who opt for the new tax regime must pay tax on the entire HRA received as part of their salary.
Since this salary component is intended to help employees meet their rental expenses in a city where they are employed, paying rent for multiple properties, such as a home near the workplace and another for parents living in a different city, can complicate HRA claims.
Can you claim HRA for a house you don’t live in?
is allowed under Section 10(13A) of the Income-tax Act, subject to certain conditions. One of the key requirements is that the employer must specifically grant the allowance to cover the employee’s actual rental expenses for the residential accommodation they occupy.
“House Rent Allowance is paid by the employers to the employees to meet the cost of the rented house taken by them. The Income-tax law allows exemption up to a certain extent in respect of the HRA if the employee pays rent for the house which he actually occupies,” according to the Income Tax Department’s website.
Accordingly, a house rent allowance can be claimed only for the rented residential accommodation that the employee occupies. If you pay rent for your own home as well as a separate property where your parents live, you cannot claim HRA exemption on the rent paid for that second accommodation, even if you bear that expense yourself.
Similarly, an employee who lives in their own house and does not pay rent cannot claim an HRA exemption under income tax law.
How is HRA calculated?
‘Schedule 10(13A)’ in the ITR form is used to compute the exempt portion of HRA under section 10(13A) of the Income-tax Act. This schedule requires disclosure of the taxpayer’s specific salary components and rent-related details to determine the eligible exemption.
The HRA exemption calculation takes into account factors such as the place of work, actual HRA received, rent paid, basic salary and dearness allowance. The exempt amount is the least of the following three amounts:
- Actual HRA amount received by the taxpayer from their employer
- Rent paid minus 10% of salary for the relevant period.
- 50% of salary if the rented accommodation is in metro cities such as Mumbai, Kolkata, Delhi or Chennai, or 40% of salary if it is in any other location (non-metro cities).
This schedule applies to taxpayers filing ITR-1 or ITR-4 for the relevant assessment year. income of up to ₹50 lakh from specified sources, including salary, pension, house property gains and other sources.
ITR-4 is meant for eligible resident individuals who opt for the presumptive taxation scheme to report eligible business or professional income. Professionals include writers, consultants and medical professionals.
However, it’s important to note that self-employed and salaried individuals who do not receive an HRA cannot claim a deduction for house rent allowance under Section 10(13A) of the Income-tax Act. However, they can still avail the benefit of rent exemption under Section 80GG of the Income-tax Act.