How to Claim your House Rent Allowance

Salary structure of an employee comprises of different components like basic salary, allowances, perquisites & contributions. House Rent Allowance (HRA) is an allowance offered by companies to employees as a part of their salary. You have to fill your house rent amount in the form 12bb

HRA is usually decided on the basis of the salary. Most of the employers cap it at a 50% of the basic salary. That is a significant part of your total salary. HRA amount also depends on your place of residence. If you live in a metro then you are entitled to an HRA equal to 50% of the salary. If you live in any other cities then you are entitled to HRA equal to 40% of the salary.

The salary for the purpose of calculating HRA will include basic salary, dearness allowance and commission. If you do not receive any dearness allowance or commission, then HRA will be calculated @ 50%/40% of the basic salary.

How to claim HRA

To claim exemption for HRA, there are two conditions:

  • Employee should be receiving HRA from the employer
  • Employee should be actually living in a rented accommodation and paying rent for the same.

If both the above conditions are satisfied, employee can claim HRA. To claim the HRA, employee has to submit Form 12 to his employer along with details of rent paid and rent receipts. If the total rent paid is greater than Rs. 1,00,000 then it is mandatory to provide PAN of the landlord on rent receipt.

Employer will calculate exempt HRA at the lowest of the following

  • Amount received as HRA from employer
  • Actual rent paid less 10% of basic salary
  • 50% of basic salary if he lives in metro or 40% of basic salary if lives in non metro

If you fail to submit rent receipts to your employer, then he will not allow the deduction for HRA. However, you can claim the same yourself. In such a situation, you need to calculate the exempt portion of HRA as mentioned above and deduct the same from your taxable salary income. Out of this revised taxable salary, you can claim section 80 deduction and derive your taxable income and tax.

Can I claim HRA and Home loan deduction simultaneously?

You can claim both HRA and home loan deduction at the same time. This will be possible when you are living in a rented accommodation for your employment purpose and you have taken a home loan for your residential house.

If you are living in a rented premises and you have take a loan for a residential property occupied by your family, then you can claim benefit for:

  • HRA for the rent paid to your landlord &
  • Deduction for interest on home loan on your self occupied property upto maximum of Rs. 2,00,000 u/s 24

If you are living in a rented premises and you have taken a loan for a residential property which is rented out then you can claim benefit for:

  • HRA for the rent paid to your landlord &
  • Deduction for home loan interest u/s 24 without any limit.