House Rent Allowance (HRA) is one of the most commonly received allowances by the salaried class. If you are paying rent for accommodation to a landlord which can mean your parents also, then you are eligible to claim tax exemption for the rent paid.

This tax-exemption can be claimed at the time of filing your tax return as well if not claimed via your employer. If you have provided proof to your employer such as rent receipts, rent agreement etc. then the amount of tax-exemption that you are eligible for will be reflected in the Form -16 i.e. a TDS certificate received form your employer.

From the AY 2019-20, the tax department has synced the ITR-1 with Form-16. This makes it easier for salaried individuals to claim the tax-exemption on HRA as you are required to copy the details from your Form-16 and paste it in ITR-1.

However, remember in such a case you will be required to manually calculate the amount of HRA received by you which is exempted from tax.

Abhishek Soni, CEO, Tax2win.in, an ITR-filing website says, “As you have not submitted the HRA documents to your employer, your Form-16 will show the HRA portion of your salary as fully taxable. This will mean that the taxable amount of your salary as shown in Form-16 will be higher than the calculations made by you.”

How to claim tax exemption on HRA?

(i) If rent agreement or rent receipts submitted to employer

If you have submitted rental agreement or rent receipts to your employer, then in such a case, 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 2019-20 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.

Remember 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’. On the other hand, the tax-exempt portion of HRA will be shown separately under the head Allowances to the extent exempt under section 10. Remember 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”, adds Soni.

If you are filing your tax return using ITR-1 on the e-filing website, then amount of HRA exempted from tax, if any, is likely to be pre-filled. It is advisable that individuals verify the pre-filled information with the available documents i.e. as mentioned in Part-B of Form-16.

In case these details are not pre-filled or you wish to file your ITR using the Excel utility, then in such a case, these details are to be reported as follows:

a) Taxable portion of HRA

As said above, the taxable portion of HRA is already added under the head, ‘Salary as per provisions in section 17(1)’. You are just required to copy the amount from the Part-B of your Form-16 and paste in the relevant section of ITR-1 form.

The required information will be pasted in the ‘Salary as per section 17’ in ITR-1 form.

b) Tax-exempt portion of HRA

The tax-exempt portion of HRA will be reported under the head, ‘Allowances exempt u/s 10′ in the ITR 1. From the drop down menu, select ’10(13A) – Allowance to meet expenditure incurred on house rent’.

You are required to copy the tax-exempt portion of HRA from Part-B of Form-16 from the ‘Allowances exempt under section 10’ and paste it in the relevant box in the ITR.

(ii) If rent agreement or rental receipts are not submitted to your employer

In case you have forgotten to submit rent agreement or rent receipts to your employer, then in such a case, you are 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. Click
here to use our
HRA calculator to calculate the tax-exempt portion of HRA.

Calculation of tax-exempt portion of HRA can be explained with an example below.

Suppose, you are living in a rented apartment in Delhi (metro city) paying a monthly rent of Rs. 15,000. You have forgotten to submit the rental agreement to your employer which has led to higher TDS deduction. Your monthly basic salary is Rs 50,000 and your employer is paying monthly HRA of Rs 20,000. This would mean that your in-hand receipt from your employer is Rs 70,000 per month.

Soni explains that to claim the HRA exemption, you are first required to calculate how much of the allowance is taxable. The minimum tax exempt portion of HRA received will be calculated based on the following rules:

a) Actual HRA received (Rs 20,000 x 12 = Rs 2.4 lakh)

b) 50% of basic salary if living in metro or 40% for non-metro cities (Rs 50,000 x 50% x 12) = Rs 3 lakh

c) Excess of rent paid annually over 10% of basic annual salary [(Rs 15,000 – 50,000 X10%)*12 = Rs 1.2 lakh]

The tax exempt portion of HRA comes out to be Rs 1.2 lakh whereas the balance Rs 1.2 lakh is the taxable part.

Once you have calculated the tax-exempt portion of HRA, you will have to claim this benefit by reporting in your ITR. Remember to choose the ITR form carefully as selecting the wrong one will lead to your return being termed as defective and you will have to file it again.

To claim the HRA exemption, first, an individual is required to enter the salary as mentioned under the ‘Salary as per provisions contained in section 17(1) ‘ in Form 16 – Part B. After that, the individual is required to enter the tax exempted HRA as calculated by you under the head ‘Allowances exempt u/s 10′ in the ITR 1. From the drop-down menu, select ’10(13A) – Allowance to meet expenditure incurred on house rent’ to enter the manually calculated amount., adds Soni.

Points to remember

Even though while filing your ITR, you are not required to send any documents to the department but at the time of processing your ITR, the tax department can ask you to provide proofs for the HRA exemption claimed.

“If annual rent payment exceeds Rs 1 lakh, then the department can ask you to provide the PAN details of your landlord as well. If you are paying rent to your parents, it is advisable that you make payments through banking channels and these payments are reflected in their (i.e., the parent’s) ITR as well,” adds Soni. Therefore, keep the proofs of HRA exemption handy in case department asks for it.