House rent allowance: How to claim exemption - HRA tax benefit illustration

House rent allowance: How to claim exemption - HRA tax benefit illustration

House rent allowance (HRA) is one of the most commonly received allowances by the salaried class. If you are living on rent or are paying rent to your parents, then you are eligible to claim exemption on it. 

If you do not submit the documents such as rent agreement or rent receipts to your employer, then he/she deducts higher TDS from your salary. However, worry not as you can still claim the tax-exemption benefit available on HRA while filing your income tax returns (ITR).

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 your taxable amount of your salary as shown in the Form-16 will be higher than the calculations made by you." 

The return filing forms notified by the Central Board of Direct Taxes (CBDT) for the assessment year 2018-19 require you to provide a detailed break-up of your salary. This year ITR-1 form requires you to provide the details of the salary excluding allowances, allowances not exempt from tax, and so on. You are also required to give details of the incomes received by you that are exempted from tax. 
How you can claim the HRA tax benefit while filing your ITR through an illustration. Let us assume the following are the details of your salary: 

claim-hra-exemption

You are living in a rented apartment in Delhi paying a monthly rent of Rs 13,000. You have forgotten to submit the rental agreement to your employer which has led to higher TDS deduction. 

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 15000 x 12 = Rs 180000) 
b) 50% of salary if living in metro or 40% for non-metro cities (Rs 25000 x 50% x 12 = Rs 150000) 
c) Excess of rent paid annually over 10% of annual salary [(Rs 13000 - 25000*10%)*12 = Rs 126000] 

The tax exempt portion of HRA comes out to be Rs 1.26 lakh whereas the balance Rs 54,000 is the taxable part. 

After calculating the taxable portion of HRA, you will have to claim this benefit 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. 
For the illustration above, one can file their tax-returns using ITR-1 form. The income from salary is required to be filled in five columns in ITR. 

claim-hra-exemption-itr

The first column requires the details of salary (excluding all allowances, perquisites and profit in lieu of salary). Given the details in the illustration above, you are required to enter details of the 'basic' part of the salary received by you. 
The second column requires you to provide the details of 'Allowances not exempt'. Here you will be required to enter the sum total of special allowance and taxable part of HRA. Remember, special allowance is fully taxable whereas transport allowance is exempt from tax up to Rs 19,200 annually. 

From FY 2018-19 onwards, any transport allowance received by you will be fully taxable in your hands. 

In the above example, since there are no perquisites, profit in lieu of salary or deductions u/s 16 that can be claimed, you will have to enter zeroes in the columns corresponding to it. 
However, this year ITR-1 requires you to report the tax exempted incomes as well. Therefore, don't forget to enter details of the tax exempt part of HRA under section 10(13A) and transport allowance under 10(14) (ii). 

How to report exempt incomes in ITR 

While filing ITR-1 online on the e-filing website of the income tax department, you are required to report these details in tab-5 under the 'Taxes Paid and verification' section. 

You have to report these incomes the fifth tab, 'Exempted incomes'. In the fourth row 'Others', click on the drop down menu and select the 'House Rent Allowance' option. Enter the amount on which you are not required to pay tax. From the above example, it will be Rs 1.26 lakh. 

Transport allowance in the above example is also exempt from tax. Select section 10(14)(ii) and enter the amount which is Rs 19,200 in the above example. 

claim-hra-exemption-itr-16

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 reflected in their ITR as well. Therefore, keep the proofs of HRA exemption handy in case department asks for it. 

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Param News: Central Government Employee News|Latest DOPT OM: House rent allowance: How to claim exemption - HRA tax benefit illustration
House rent allowance: How to claim exemption - HRA tax benefit illustration
How you can claim the HRA tax benefit while filing your ITR through an illustration. To claim the HRA exemption, Form-16 will show the HRA, the details of your salary:
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