What is HRA Exemption?

Salaried employees usually face problems related to tax implications in claiming House Rent Allowance (HRA). HRA forms a part of the taxable salary of an individual residing in his own house or in a rented property. The basic idea behind the concept of HRA exemption is to provide the exemption of rent paid by the employees in their taxable salary. It is granted by the employers to their employees.

Limit of HRA exemption

HRA exemption claim is the least of the following:
– HRA received by the employee
– 50% of salary (in case of metro cities) / 40 % of salary (in case of any other city)
– amount of rent paid over and above 10% of salary

HRA exemption: When can you claim it?

HRA exemption cannot be denied even if the employee:

• is living in his parent’s/spouse’s house, provided he pays regular rent to them and has a proper proof of payment in the form of rent receipts.
• has his own house in the same city but too far from his work place and lives in a rented house near his work place. For instance, Mr. Gupta has his own house in south Delhi and his work place is in north Delhi. In this case, if he resides on rent in north Delhi despite having his own house, he is eligible to claim HRA exemption.
• and his parent both have a house in the same building, the employee resides in his parent’s house and pays him monthly rent, while giving out his own house on rent. For instance, Mr. Verma and his father are the owners of independent floors of the same building. Since Mr. Verma is unmarried, he lives with his ailing father on the floor owned by his father and pays him a monthly rent. He has given out his own floor on rent to earn additional monthly income. In this case, Mr. Verma is eligible to claim HRA by producing the receipts of rent paid to his father. If Mr. Verma is unable to find a suitable tenant and his floor is lying vacant, he is still eligible to claim HRA exemption as long as his intent is to rent out his floor.
• the rented house and the self occupied house are in the same locality or in close proximity of each other. For instance, Rahul stays in his father’s house and pays rent on a monthly basis. Also, he has his own house in the next lane where his wife and children reside. In this situation, he can claim the exemption of HRA received from his employer as he has a self occupied house in the vicinity.

HRA exemption: When can you not claim HRA exemption?

House Rent Allowance exemption cannot be claimed if:

• the rent paid does not exceed 10% of salary.
• an employee lives in a house owned by him.
• the rent is not paid by the employee.

In order to claim HRA exemption, one should have proper and authentic rent receipts given by the landlord.