AY 2019-20: How To Get House Rent Exemption in Income Tax?

Irrespective of vast reasons like a need to continually shifting place, or maybe of financial goal, or never found their dream home, a person becomes a tenant and resides in a rented house.

But, with rents rising at a sky-rocket pace, isn’t the government is doing anything to provide comfort for rented people. Are all tax benefit schemes are only for house owners and not for tenants? To solve this issue, the HRA exemption had been introduced. House rent exemption in income tax helps tenants to get relief from the paying hefty TDS.

What is HRA?

House Rent Allowance, i.e. HRA, is a share of the salary that is contributed by the employer to employees. Adhere to the increased costs of the rented houses; employers pay HRA to the employees. The main reason for HRA is, every year it helps employees with tax benefits for the accommodations.

It depends on the various reasons like the amount of salary received and the residing city of the employee. Only salaried persons can avail of the benefits and not the self-employed people. To utilize the benefits employees mustn’t possess their house in which they live and must pay rent.

Who Are Qualified for House Rent Income Tax?

Any salaried or self-employed person can avail of the benefits of the HRA exemption. But, for each category, a specific set of guidelines are involved. When you have rented a house and charged above Rs 1 lakh per year, remember to ask for the landlord's PAN. Otherwise, you may be expended from the HRA exemption. Landlords with no PAN are to be prepared to provide you with Circular No. 8/2013 of 10 October 2013 declaration references. With NRI owners, tenants are needed to deduct a 30% amount as TDS while paying the rent.

How to Calculate HRA?

Let’s consider that a person is living in a metropolitan city with a basic pay of Rs 50,000 Per Month. As per this, the HRA will be 25,000 as it is a metropolitan city. But if they pay an actual rent of Rs 20,000 then,

Actual HRA per year will be Rs 25,000 X 12 = Rs 3,00,000

Actual rent paid (Rs 20,000 X 12 = Rs 2,40,000) – 10% of salary (Rs 60,000) = Rs 1,80,000 50% of basic salary [(Rs 50,000 X 12) X 50%] = Rs 3,00,000

Considering the least amount, 1,80,000 of HRA exemption will be done from the income tax.

Income Tax Benefits for Salaried Persons

Under Section 10 (13A) of the Income Tax Act, any salaried person that receives HRA from their employers is entitled to fulfill certain conditions to enjoy house rent income tax benefits.  Anyone who qualifies these standards are only liable and come under this category.

The foremost one is actually to stay at a rented house. It must be in the same city as your current employment. You shouldn’t be the owner or the partial owner of the house and should live in a residential home and must pay rent. It shouldn’t be like you are a co-owner, you pay rent to the partner or you should lease your property to your employer, which in turn he pays you the amount as your rent.

How House Rent Exemption in Income Tax Is Calculated?

For a salaried person, the house rent exemption in income tax is calculated as the least of the following,

  • House Rent Allowance received by the employer.

  • If the employee stays in metropolitan cities than 50% of the salary is considered

  • 40% of the salary is considered if the employee resides in other than in cosmopolitan cities.

  • Actually paid rent is reduced by 10% of the salary

Based on the above points, the salary is calculated. If in any case, the employee paid rent doesn’t exceed by 10% of the salary, then no HRA tax exemption will be given.

House Rent Exemption in Income Tax Benefits for Self-Employed

What if an employee doesn’t receive HRA from their employer or they are self-employed? The government has levied tax benefits for all under certain conditions. Under Section 80GG of the Income Tax Act, a self-employed or employees who don't receive HRA from their employers can enjoy tax benefits.

A person can claim a maximum tax deduction of Rs 60,000 PA or Rs 5,000 PM. The tax deduction is done on the total income and is limited to 25% of the total income, or actually paid rent is reduced by 10% of the salary.

In such a case, you are subjected to certain liabilities like one can’t claim house rent tax benefits even if their spouse or their child has their own accommodation in the same area. Even if their owned property is let-out, they cannot claim the HRA exemption benefits. And if you own a property at any other place and is declared as self- then also it doesn't fulfill the criteria of house rent exemption in income tax.

With a vast database of property-related information, PropertyAdviser can help you find your dream home at affordable prices in one of the fast-emerging metropolitan city, Hyderabad. Are you interested to know more about the latest real estate news? Browse our online portal for more updated information.

By Govi