House Rent Allowance (HRA) is a major component of a salaried individual's pay structure. If you are staying in a rented house and paying rent, then you can claim exemption for the rent paid. Typically, salaried individuals claim this exemption through their employer by submitting house rent receipts (in support of their rent payment) in the last quarter of that financial year.

If House Rent Allowance (HRA) is a component in your salary, you can save tax on the rent paid if you have opted for the old tax regime in FY 2020-21. In order to claim the tax-exemption on HRA, you are required to submit proofs such as rent receipts/rent agreement to your employer. The amount you are eligible to claim tax-exemption for will be reflected in Form 16 issued to you by your employer.

First, you will have to calculate the exempt HRA amount manually. You can claim HRA deduction only if you incur expenses towards house rent. For salaried individuals who don’t live in rented accommodation, HRA allowance will be fully taxable for them.

The HRA exemption which a salaried individual is is eligible to receive is the lowest of the following amounts:

• Actual HRA received
• 50% of (basic salary + DA) for those living in metro cities (40% for non-metros)
• Actual rent paid minus 10% of (basic salary + DA)

After calculating the HRA exemption, taxpayers can claim it while filing ITR. In the ITR form, taxpayers are required to provide the break-up of salary, which means the basic salary including all allowances. You have to enter the allowances that are not exempted. For HRA, you have to enter the non-exempt part of HRA and other allowances that are not tax-exempt. Taxpayers will also have to declare the amount of HRA they are claiming as an exemption.

How to claim tax exemption on HRA?

1. If rent agreement or rent receipts submitted to employer: You are required to submit rent agreement/rent receipts to your employer for lower deduction of taxes from salary. Once it is submitted, the tax-exempt portion of HRA received by you can be seen in Form-16. It is possible that either the entire HRA received by you during the FY 2020-21 is exempt from tax or only part of it is exempted, depending on which of the conditions/criteria set down for claiming HRA exemption you meet.

While submitting rent agreement or rent receipts to your employer, you are also required to submit PAN of your landlord if the annual rent exceeds Rs 1 lakh. The taxable portion of HRA will be added to your salary as per provisions in section 17(1) under the head 'Gross Salary'. The tax-exempt portion of HRA will be shown separately under the head Allowances to the extent exempt under section 10. While filing the ITR-1, you will be required to mention the tax-exempt portion of HRA (partial or full depending on the calculations) under the head - Allowances to the extent exempt u/s 10.

2. If rent agreement or rental receipts are not submitted to your employer: If you are planning to change your tax regime to old tax regime at the time of filing ITR or have not submitted proof to your employer, then you will be required to manually calculate the tax-exempt portion of the HRA received by you. This is because your employer has assumed that the entire HRA paid to you is taxable.