How to Claim HRA While Filing Your ITR

Introduction

One of the key advantages included in a salary slip is the Housing Rent Allowance (HRA), which can help reduce your Income Tax Return (ITR) liability. If you receive a salary and rent a home, you can use the HRA to offset part or all of your tax obligations. It covers your rental housing expenses, but if you own a home, the HRA will be fully taxable. To learn more about how to claim HRA in your ITR, explore this blog.

When submitting your income tax returns, you can request an HRA exemption, provided your employer hasn’t already claimed it on your behalf. You can use auriga accounting HRA calculator to accurately determine your HRA amount for claiming in your ITR. If you need assistance with any legal matters, our experienced legal professionals at auriga accounting are ready to help.One of the most valuable components of a salary slip is the House Rent Allowance (HRA), which can help reduce your tax liability when you file your Income Tax Return (ITR). If you’re a salaried individual and pay rent for your home, you can claim HRA to either partially or fully offset your tax obligations, covering your rental expenses. However, if you own your home, the HRA is fully taxable.

When filing your ITR, you can claim an HRA exemption, but this is only possible if your employer hasn’t already submitted an HRA claim on your behalf. To calculate the eligible HRA amount, you can use auriga accounting HRA calculator.

For any legal assistance or queries during the ITR filing process, the experienced professionals at auriga accounting are ready to help you navigate through it smoothly.

Explanation of House Rent Allowance (HRA)

House Rent Allowance (HRA) is a benefit provided to salaried individuals who live in rented accommodations. It helps cover the costs of renting a home. If you rent a house, you may be eligible to claim HRA in your Income Tax Return (ITR). However, if you do not live in rented housing, the HRA you receive will be fully taxable

How to Claim HRA While Filing ITR: An Overview

Claiming HRA can significantly lower your tax burden. Here’s why you should consider claiming HRA in your ITR:

Reduces Taxable Income:
HRA is exempt from tax up to a certain limit, based on factors like your salary, the actual rent paid, and the city you reside in. By deducting the eligible HRA amount from your total taxable income, you can effectively reduce your overall tax liability.
Increase in Disposable Income
By claiming HRA in your ITR, you can save on taxes, resulting in higher disposable income. The savings can be redirected towards investments, savings, or other financial goals.
Compliance with Tax Laws
HRA is a legitimate tax benefit. Properly claiming it in your ITR ensures compliance with tax regulations, helping you avoid penalties or any legal issues.
Better Financial Planning
Claiming HRA as part of your ITR filing can be an effective financial planning strategy. By reducing your tax liability and increasing your disposable income, you can manage and plan your finances more efficiently.

Eligibility for Claiming HRA in ITR

1. Employment Status

Only salaried employees are eligible to claim House Rent Allowance (HRA) in their Income Tax Return (ITR). Self-employed individuals, freelancers, and those earning income from other sources are not eligible for HRA benefits.

2. Rent Payment

To claim HRA, the employee must be living in rented accommodation and paying rent. The rent paid must exceed 10% of the employee’s basic salary. If the rent is less than this threshold, the employee cannot claim HRA.

3. Residential Status

Only individuals who are residents of India are eligible to claim HRA in their ITR. Non-residents are not entitled to this benefit.

4. City of Residence

The amount of HRA exemption depends on the city of residence, not the location of the workplace. Cities are classified into three categories based on their population, with different exemption rates:

Metro cities (e.g., Delhi, Mumbai, Kolkata, Chennai): Higher exemption (50% of basic salary)
Non-metro cities: Lower exemption (40% of basic salary)

5. Salary Structure

HRA calculations are based on the employee’s basic salary. The exemption is the least of the following:

Actual HRA received
50% of basic salary for metro cities / 40% of basic salary for non-metro cities
Rent paid minus 10% of basic salary

Who is Eligible to Claim HRA?

Salaried employees are eligible to claim House Rent Allowance (HRA) in their Income Tax Return (ITR). This benefit is not available to self-employed individuals, freelancers, or those earning income from other sources. To qualify for HRA, the individual must meet the following conditions:

Living in Rented Accommodation: The employee must live in a rented property and pay rent. HRA is not available if you live in your own house or at a family member’s property.
Payment of Rent: The employee must make rent payments to a landlord. HRA cannot be claimed if rent is paid to a family member.
Rent Exceeds 10% of Basic Salary: The rent paid must be more than 10% of the employee’s basic salary to qualify for HRA.
Resident of India: Only residents of India are eligible to claim HRA. Non-residents are not entitled to this exemption.
Salary Structure: The HRA exemption is determined based on the employee’s salary structure. To qualify, the employee must receive the least of the following:
- Actual HRA received
- 50% of basic salary for those living in metro cities
- 40% of basic salary for those living in non-metro cities
- Rent paid minus 10% of basic salary

Conditions to Meet for Claiming HRA

- Proof of Rent Payment: The employee must provide proof of rent payment, such as rent receipts or a rent agreement, to the employer.
- Living in Rented Accommodation: To claim HRA, the employee must reside in rented accommodation used solely for residential purposes.
- Rent Paid: Rent must be more than 10% of the employee’s basic salary for HRA eligibility. If rent is less than 10% of the basic salary, HRA cannot be claimed.
- City of Residence: The HRA exemption is calculated based on the city of residence. Metro and non-metro cities are treated differently, and the corresponding exemption varies.
- Salary Structure: The HRA exemption is based on the employee’s salary structure, with the eligible amount being the least of the following: actual HRA received, 50% of basic salary for metro cities, 40% of basic salary for non-metro cities, or rent paid minus 10% of basic salary.
- Residential Status: Only residents of India can claim HRA. Non-residents are ineligible.

Claim HRA in ITR: How to Calculate HRA

To claim HRA in your Income Tax Return (ITR), follow these steps for calculation:

Determine Actual HRA Received: Identify the total amount of HRA received from your employer during the financial year.
Calculate the Least of the Following:
- Actual HRA received from the employer
- Rent paid minus 10% of your basic salary
- 50% of your basic salary (for employees residing in metro cities) or 40% of your basic salary (for employees residing in non-metro cities), as applicable
Determine Taxable HRA: To find the taxable HRA amount, subtract the least value (from the options above) from the actual HRA received.
Calculate HRA Exemption: Finally, to calculate the HRA exemption in your ITR, subtract the taxable HRA amount from the least value calculated earlier.

By following these steps, you can effectively claim HRA and reduce your taxable income.

Different Methods Used to Calculate HRA:

There are several methods used to calculate HRA, each based on different factors:

Actual Rent Paid Method: This method considers the actual rent paid by the employee during the year.
Actual HRA Received Method: Here, the calculation is based on the actual HRA received from the employer.
Metro/Non-Metro Method: This method takes into account the employee’s location (metro or non-metro city) and their basic salary to determine the HRA eligibility.

Tips for Calculating HRA Accurately:

To ensure accurate HRA calculation for your Income Tax Return (ITR), follow these tips:

Maintain Records: Keep precise records of the rent paid and the HRA received from your employer throughout the year.
Understand Eligibility: Be clear about the eligibility criteria and conditions required to claim HRA.
Choose the Right Method: Know the different methods used for calculating HRA, and choose the one that benefits you the most.
Follow the Formula: Use the correct formula and steps to calculate your HRA exemption accurately.
Consult a Tax Professional: If you have any doubts or need clarification about HRA calculation or tax implications, consult a tax expert for guidance.

Documenting HRA for ITR Claims

To successfully claim HRA in your ITR, the following documents are essential:

Rent Receipts: You must submit rent receipts to your employer as evidence of the rent paid. These receipts should detail the landlord’s name, rented accommodation address, rental period, and the rent amount.
Rent Agreement: A rent agreement can serve as additional proof of the rented accommodation. This agreement should be on stamp paper and include the landlord’s name, the rented address, rental period, rent amount, and signatures of both parties.
Salary Slips: Your salary slip should list the amount of HRA you received from your employer.
PAN Card: You may be required to provide your PAN card details when claiming HRA.
Form 12BB: This is a declaration form required to claim HRA, including details of rent paid, the landlord’s name, and the PAN number of the landlord (if available).

How to Obtain Documents for HRA Claims

Rent Receipts: Obtain these from your landlord. Ensure they contain all the necessary details for verification.
Rent Agreement: You can ask your landlord for a copy of the rent agreement. Alternatively, if there isn’t one, you can draft your own on stamp paper.
Salary Slips: These can be obtained directly from your employer.
PAN Card: You can apply for a PAN card either online or through any authorized PAN service center.
Form 12BB: This form is available from your employer or can be downloaded from the Income Tax Department’s website. Fill it out and submit it to your employer.

Tips for Maintaining Accurate HRA Records

Safeguard Rent Receipts: Store all rent receipts and rental agreements in a secure place.
Keep Track of Rent Payments: Maintain a record of rent paid each month.
Store Form 12BB: Keep a copy of the Form 12BB you submitted to your employer.
Retain Salary Slips: Keep a copy of all salary slips that mention the HRA receive

Steps to Claim HRA in ITR

Calculate HRA Exemption: Use the formula to calculate your HRA exemption amount in ITR.
Determine Taxable Salary: Subtract exemptions and deductions from your gross salary to find your taxable income.
File Your ITR: Use the appropriate ITR form for filing your income tax return.
Enter HRA Details: Fill in the HRA-related fields in the tax return form, including the actual HRA received, the least of (a, b, c), and the calculated exemption amount.
Attach Supporting Documents: Attach your rent receipts, rent agreement, and Form 12BB when submitting the ITR.

ITR Forms to Claim HRA

The following ITR forms allow you to claim HRA:
- ITR 1: For individuals with income up to ₹50 lakhs and one house property.
- ITR 2: For individuals with income from more than one house property and capital gains.
- ITR 3: For individuals with business or profession income.
- ITR 4: For individuals with income from presumptive business or profession.
- ITR 5: For partnership firms, LLPs, and AOPs.

Tips for Accurately Filling Out ITR Forms for HRA

- Double-check Calculations: Verify that the correct HRA exemption amount is entered.
- Attach Necessary Documents: Ensure that you attach the rent receipts, rent agreement, and Form 12BB to the ITR.
- Use the Correct ITR Form: Select the right ITR form based on your income and the source of that income.
- Complete the Form Carefully: Fill in all the required details correctly to avoid mistakes.

Who Can Claim HRA Exemption in ITR?

Salaried individuals who receive HRA as part of their salary and contribute to rent payments are eligible to claim HRA exemption in ITR. HRA helps reduce taxable income either partially or fully.

Employer’s Role: Your employer typically provides a tax projection statement, which includes the HRA amount. The employer withholds this amount from your salary, and it is reflected in Part B of Form 16 when filing your ITR.
Revised Returns: If you fail to claim your HRA with the initial tax return submission, you can file a revised return before the assessment year ends.

Eligibility Criteria for Claiming HRA in ITR

To be eligible for HRA exemption in ITR, the following conditions must be met:

You are a salaried employee.
You receive an HRA component in your salary.
You reside in rented accommodation and pay rent.
Even if your employer does not offer HRA, you may still claim a deduction under Section 80GG if you meet the required conditions.

Section 80GG Eligibility:

You must either be self-employed or employed.
You have not claimed HRA deductions during the same fiscal year.
You do not own any residential property where you currently reside, work, or do business. This includes properties owned by your spouse, minor children, or Hindu Undivided Family (HUF).
If you own another residential property elsewhere, you may still be eligible for the Section 80GG deduction if the other accommodation is considered rented out.

The HRA exemption limit is determined by the following factors:

Actual House Rent Allowance (HRA) received.
40% of the basic salary (including dearness allowance) for individuals living in non-metro cities, and 50% of the basic salary (including dearness allowance) for those residing in metro cities.
Actual rent paid, if it exceeds 10% of the basic salary (including dearness allowance).
When claiming a deduction under Section 80GG in your Income Tax Return, the HRA exemption limit will be the least of the following:
1. ₹5,000 per month.
2. 25% of total adjusted income.
3. Actual rent paid, if it is less than 10% of your adjusted total income, which includes your total income after deductions under Sections 80C to 80U, long-term and short-term capital gains, and income under Sections 115A or 115D.

How to Claim HRA in ITR?

Claiming House Rent Allowance (HRA) in your Income Tax Return (ITR) is essential for individuals who are salaried and live in rented accommodation. Here’s how to claim it effectively:

If Rent Receipts Are Provided to the Employer:

When you provide your employer with rent receipts, they will consider the HRA exemption while preparing your Form 16. This ensures that your employer adjusts the tax withheld at source (TDS) accordingly, reducing the tax burden. When filing your ITR, the HRA exemption will be automatically reflected in Form 16, making it easier to file your return.

In this case, make sure to also provide the PAN details of your landlord for HRA exemption. Filing for HRA has become more convenient with the integration of Form 16 and ITR-1, which pre-fills the required details when submitting your claim online.

If Rent Receipts Are Not Provided to the Employer:

If you didn’t submit rent receipts to your employer, they would have deducted TDS without considering the HRA exemption, leading to higher tax deductions. However, you can still claim the HRA exemption when filing your ITR.

You will need to manually calculate the HRA exemption that you should have received, and the extra TDS deducted will be refunded when you file your ITR. Ensure that you have the correct amount of HRA exemption to claim.

If you need assistance with the ITR filing process, Vakilsearch’s team of legal professionals is ready to guide you.

Example:

Suppose you pay ₹15,000 monthly rent in Bangalore (or a similar amount). However, you failed to submit rent receipts to your employer, resulting in excess TDS. Your monthly base salary is ₹70,000, and you receive ₹20,000 as a health reimbursement allowance.

Here’s how your HRA exemption will be calculated:

Actual HRA received
50% of the base salary
Rent paid exceeding 10% of the base salary

Based on these calculations, the HRA exemption limit will be ₹1.2 lakh, and the remaining amount will be considered taxable. After determining the HRA exemption, use the relevant Income Tax Return form and follow these steps:

Enter salary details: In Form 16, go to Part B and input your salary under “Salary as per requirements specified in section 17(1).”
Claim HRA exemption: Using the dropdown, select 10(13A) to enter the HRA under “Allowances exempt u/s 10” in ITR 1.

By following these steps, you can easily claim your HRA exemption and ensure you’re not paying excess tax.

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