If you are a salaried person receiving house rent allowance (HRA) from your employer, you are entitled for a tax deduction under the Income Tax Act. The tax implications of the house rent allowance (HRA) seem to be a confusing factor for almost every person.
House rent allowance (HRA) is a grant given by the employer to the employee to meet the cost of renting a house. It is basically a part of the taxable salary of an individual and one receives it irrespective of the type of property he resides in. Whether one stays in the rented accommodation or resides in his own house, he will get the HRA if his employer chooses to offer the allowance.
The deductions on HRA are eligible under Section 10(13A) of the Income Tax Act and will depend on certain laws. An individual can claim an HRA exemption only if the following three conditions are satisfied:
- An HRA allowance is received as part of the salary package.
- If one is staying in a rented accommodation and paying rent for it.
- The rent exceeds 10% of the salary.
But it should be noted that one cannot claim deduction for rent paid to spouse. The relationship between a husband and wife is not commercial in nature and therefore the rent paid to spouse is not considered by the income tax authorities. On the other hand, rent paid to the parents is eligible for exemption. If you stay with your parents and pay rent to them then you can claim for tax deductions. However you need to keep all your rent receipts since it is the only proof that you are paying rent. HRA exemptions are only available on submission of rent receipts or the rent agreement.
Another factor that effects the tax exemption is the place where you live. If one resides in a metro city, he is eligible for a deduction of up to 50% of the salary or else the deduction is 40%.