Claim HRA Exemption and Reduce Your Tax Liability for FY 2022-23

Living in a rented house has its own benefits, one being to claim House Rent Allowance (HRA) in your Income Tax Return (ITR) and save tax. Any salaried individual living in a rented house can claim an HRA deduction under the Income Tax Act, 1961. However, you can claim this deduction only when you choose the old tax regime.

What is the HRA exemption?

Employers will provide House Rent Allowance (HRA) component as part of an employee’s salary. The employees can claim this HRA amount as a deduction while filing their ITR if they live in rented houses. 

Calculation of HRA exemption

In some instances, the entire HRA amount provided by the employer cannot be claimed as a deduction. This is because, as per the provisions of the Income Tax Act, a salaried individual can claim only the minimum of the following three as an HRA exemption while filing ITR:

1. Actual HRA received
2. 50% of the basic salary for those living in metro cities (Kolkata, Delhi, Chennai or Mumbai) and 40% for those living in non-metro cities
3. Actual rent paid minus 10% of the basic salary

Thus, an employee can claim the least of the above three as an HRA deduction. You can use ClearTax HRA Calculator to know your HRA deduction.

Documents required to claim HRA exemption

To claim HRA exemption, employees should submit the rental agreement and rent-paid receipts. However, if the rent is more than Rs.1 lakh p.a., you must also provide the landlord’s Permanent Account Number (PAN). Based on the submitted proofs, employers will provide HRA exemption in Form 16. 

Can you claim an HRA exemption even if your employer doesn’t pay HRA or if you are self-employed?

Providing the HRA component in salary solely depends on the employer. Though most employers provide HRA, a few employers may not include HRA in the salary component of the employees. You can still claim a deduction under Section 80GG of the Income Tax Act for the rent paid to your landlord, even if the HRA is not part of your salary. Self-employed individuals can also claim an HRA deduction under Section 80GG when they live in rented accommodation and pay the rent for the same.

You must fulfil the following conditions to claim a deduction on the rent paid under Section 80GG:

• You must be a salaried employee or a self-employed individual.
• You must not have received HRA at any time during the financial year you are claiming a deduction under Section 80GG.
• You, your spouse or your minor child does not own any residential accommodation at the same place where you reside, perform office duties, have employment or carry on business or profession.

Can you claim an HRA deduction even when you live with your parents?

You can claim an HRA exemption even when living in your parent’s house. In this case, you must enter into a rental agreement with your parents and transfer rent money to them monthly. Your parents must report the rent paid by you as income in their ITR.  

Can you claim both HRA and home loan interest deductions?

You can claim an HRA deduction when living in a rented accommodation and paying a home loan, even if the rented and your own house are in the same city. However, there must be sufficient reasons for not residing in your self-owned house. The possible reasons could be that you have taken a loan for a home but living in rented accommodation in another city. 

You may also live in rented accommodation in the same city where you own a house for reasons such as children’s schooling or work, your house is under construction, or you have rented out your own home and live in another place.

The Income Tax officials scrutinise such claims and may reject part of the HRA claim if dissatisfied, mainly if the claimed amount is relatively high.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@clear.in