HRA(House Rent Allowance) forms a crucial component of your income. You can claim tax exemption on your HRA, subject to certain conditions. You should understand them thoroughly if you want to pocket the tax benefits. The amount exempted would be the least of the 3: i) The actual HRA printed on your pay slip, or ii) 40/50% of your basic salary + dearness allowance, or iii) The rent amount minus 10% of basic salary + dearness allowance. (Dearness allowance is generally paid mainly in government/public sector organisations and is very uncommon in private sector.)
If you, for example, earn a salary of Rs 40,000, the HRA works out to Rs 20,000 (50% of the salary). Let us assume that you pay a rent of Rs 15,000 for an accommodation in Mumbai. Now the amount of rent paid minus 10% of the salary, which is Rs 11,000, being the least is the HRA exempt from tax. The balance Rs 9,000 (Rs 20,000 – Rs 11,000) is the taxable HRA. However, note that the actual HRA need not be 50% of basic salary.
The amount of actual HRA would be as per the pay structure and could be more or less than 50% of the salary. However, in many companies salary is so structured that HRA is 50% (if the company is based in the Metros; else 40%) of the basic salary.
EXEMPTION ON HRA : You can claim the rent given to parents as HRA exemption. For example, if you live with parents and pay them rent, this technically makes your parents the landlords. Then one of your parents should declare it in his/her personal income-tax return to prevent litigation in future. However, you cannot claim rent paid to spouse. Tax experts say the relationship between a husband and wife is not commercial in nature and they are supposed to stay together. So the income-tax authorities will not accept payment of rent to a spouse.
You should provide your employer with accurate rent information so that the company can credit you with the eligible amount of relief before deducting tax at source. Another alternative is that you can also claim such exemption when you file the tax return and seek a refund. If you receive HRA for the period during which you were not occupying a rental accommodation then you would not earn any exemption. In all cases, it is advisable for you to maintain rent receipts as they are the only proof for rent payments.
HOME LOAN AND HRA : If you took a home loan to buy a house in Mumbai, but you reside in say Bangalore for some reason, you can get tax benefits on your housing loan. Suppose you have bought a house in the same city but are staying in a rental accommodation because the house is not ready for possession, you will be entitled to the tax benefits. You can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete for possession, the HRA benefit stop tax experts say.
This post is very excellent, because the very informative thanks for sharing.
ReplyDeletePicsingapore 2014