House rent allowance (HRA): Eligibility, calculation, how to avail
HRA and the implications from tax perspective.
Eligibility for tax benefit
To qualify for tax benefit on HRA, the individual should be a salaried employee, should reside in a rented accommodation and pay rent. Self-employed individuals are not eligible for claiming tax benefit on HRA.
Calculating HRA exemption
The amount of HRA that is exempt from tax is determined on the basis of the least of the following three:
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- Actual HRA received from the employer.
- Annual rent paid, minus 10% of the salary.
- 50% of the employees basic salary (for employees residing in metro cities) or 40% of basic salary (for non-metro cities).
Proof of rent payment
To be eligible for tax exemption on HRA, the employee must furnish documentary evidence of rent payment, such as rent receipts or rental agreement, to the employer.
Residence in own house
An employee getting HRA cannot claim exemption under the Income-tax Act if he is residing in his own house. He should actually be living in a rented accommodation.
Points to note
- It is important to have a formal rental agreement in place between the landlord and tenant. It should specify details like rent amount, duration of tenancy, and other terms and conditions.
- Tax benefits for HRA are available only if the individual has opted for the old tax regime.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
