Income tax returns: The House Rent Allowance (HRA) on your salary slip can be utilized to decrease your tax obligations. Making false HRA claims or underreporting income may result in a penalty of up to 50% of the evaded tax or three times the amount evaded.
The Housing allowance is eligible for tax deductions when filing income tax returns (ITR) as per Part B of Form 16. Under Section 10(13A), individuals can only claim this housing allowance if they reside in a rented property.
The tax projection statement at the start of the financial year provides the housing allowance amount. Individuals who do not receive HRA, such as certain citizens, can still claim a deduction for their rental expenses under Section 80GG. This exemption does not apply to employees who live in a property owned by themselves, their spouse, minor child, or Hindu Undivided Family (of which they are a part).
HRA serves as an effective tax-saving tool to decrease an individual’s tax liability. It’s crucial to follow the correct legal procedures.
When filing ITR, how is the calculation of HRA exemption done?
The calculation of HRA exemption is based on the lowest value from the following three factors.
1. You need to consider the actual HRA amount mentioned in your salary slip.
2. For individuals in metro cities, 50 percent of the salary is considered, while for non-metro cities, it’s 40 percent of the salary.
3. After considering your salary including dearness allowance, subtract 10 percent from the rent paid amount.
When an individual claims HRA deduction under section 80GG, they can receive a deduction of either ₹5,000 per month or 25 percent of their adjusted total income, or the actual house rent paid minus 10 percent of the adjusted total income, whichever amount is lower.
HRA Claim Document Requirements:
Need a rent receipt with the landlord’s acknowledgment and their PAN card details if the annual rent exceeds ₹1,00,000.
Also requires the rental property’s rent agreement.