HRA Exemption – Maximize Tax Benefit in India

HRA or House Rent Allowance is the allowance that is given to an employee from the employer in order for them to pay for the rental accommodation charges for where they are living.

This is primarily meant for those people who work outside of their hometown and are in requirement of staying in a temporary accommodation situation. According to the new law for Income Tax, the house rent allowance that an employee is playing is exempted from paying tax. This is commonly known as HRA exemption.

There are a number of rules and regulations that need to be kept in mind for an individual who wants to be considered under the HRA exemption. Some of the necessary fields that need to be abided by the employer who is getting tax exemption from their employee are:

·       The House Rent Allowance needs to be given from the employer to the employee.

·    The actual rent for the accommodation is deducted from 10% of the basic salary of the  employee.

·    For those who are living in metropolitan cities like Mumbai, Kolkata, Delhi, and Chennai,  they are to be allotted 50% of their basic salary as House Rent Allowance.

·     For those who are working and living in non-metropolitan areas, their house rent allowance is usually 40% of the basic salary that they receive from the employer.

If the employee pays less for their rent and there is part of the house rent allowance remaining after he/she has paid for their accommodation, this remaining salary is added back to the basic salary of the employee which will now be taxable under the income tax.

Calculating and Understanding HRA Exemptions

The first thing that we need to understand before calculating the amount of exemption is the criteria for the exemption. For this, an example is an ideal way to understand the amount of money that is considered as non-taxable from the HRA exemption.

Rahul is an employee who works in a firm in Kolkata. The basic salary that he receives at the end of each month from this employer is Rs50, 000. The same employer pays him an amount of Rs15,000 as house rent allowance so that he can pay for the place that he has rented out and currently lives in. The amount of excess rent that is laid to the landlord over 10% of the basic salary of Rahul is Rs1,75,000. Between all the figures that are mentioned in the above example, the amount of money that is exempted from taxes is the minimum amount, i.e. 15,000 rupees. 15,000 rupees if Rahul’s HRA exemption amount.

Now, there are special cases that also need to be considered where Rahul is considered to be living with his parents in the same city and gets HRA allowance from his employer. Then for Rahul to make sure that HRA exemption is applied to him, he needs to submit the evidence that he pays rent to his parents for living there. The only condition for this to get through is if the house is in the name of Rahul’s parents and not in his own name. The HRA that the parents receive from Rahul should also be reflected in their income tax forms that they need to file at the end of each financial year.

HRA Exemption Benefits

Not all employees are allotted a separate House Rent Allowance from their employees and thus not all the employees can avail for the HRA exemption from their taxes. Only those individuals who have a separate allowance from their employer in the form of house rent are the ones that can ask for HRA claims and return benefits.

The best part about House Rent Allowance is that it is a separate salary allotted by the employer, so house rent is not deducted from the normal salary of an individual leaving them with very less amount of money for themselves and for purchasing their daily amenities and so on. The separate house rent allowance is a way of the employer or the company to ensure that the employers have a place to live and are able to afford it. The employee also checks if the place that they are living in is within the budget of the house rent salary that is provided to them.

Usually, the entire amount of money that is provided in the house rent allowance is exempted for tax completely or partially depending on the receipts for house rent that is provided by the employee. The house rent receipts are an important way of confirming that the house rent allowance that is provided to employees is being used by them. This serves as proof and can be added to one’s income tax form in order to avail the HRA return claims. The HRA exemption provides employees with more on their salary than what they already have.

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Income Tax Return Filing By Individuals: Who Should File and How to File

In every sphere of life, everyone has to shell out a percentage for everything that they buy, directly or indirectly. This shelling out of money is basically in layman terms called a tax. Tax exists everywhere, at the movies, at a restaurant, for services and even for your electricity. It is the duty of each and every citizen to pay the tax to the Government.

What Is Income Tax Return?

Income tax return is plainly the filing of the income tax form prescribed by the Government by a citizen. The tax return form contains information concerning the person’s income and tax paid to the Government. This tax return form is filed at the end of each financial year by people who come under the taxable slab. 

Who Fills An ITR?

Filing of income tax returns is necessary for people whose annual income exceeds Rs. 2.5 lakhs. You can also be an individual in the possession of valid credit. The criteria however for a senior citizen of 60 years of age is Rs. 3 lakhs per annum and for a super senior citizen of 80 years of age is Rs. 5 lakhs per annum. ITR’s also need to be filed by people who own immovable property as well as vehicles.

Why Should One File Income Tax Returns?

The Income Tax Act, 1961 of India, section 139(1) states that all individuals whose total income of the previous year extended the maximum amount not taxable, is mandatory to file Income Tax Returns (ITR). Taxable income is the gross income minus the deductions or exemptions permitted in that tax year.

What Is Individual Income Tax Return?

Every individual salaried or self-employed and who earns a certain amount of income needs to file an individual income tax return. An individual income tax return is a document to be filed with the Internal Revenue Service IRS or the state tax board specifying your income, profits and losses in business, other deductions and detailed description of taxability or tax refund. Taxation rates vary depending on the characteristics of a taxpayer. The filing of tax returns forms depends on various criteria as each taxpayer cannot submit the same form.

What Is The Deadline For Filing Individual Income Tax Return?

Each taxpayer has to file their individual income tax returns by the 31^st of July for each financial year.

What Are The Different Income Tax Returns Forms?

·         ITR-1: This is for persons who are salaried, pensioners, or who acquire income from a house property or lottery with no loss or foreign relief. However, a person who has an income above Rs. 50 Lakhs cannot file under this category.

·         ITR-2: This is for persons who do not have income under any proprietary firm.

·         ITR-3: For those persons who are business owners and professionals.

·         ITR-4: For those persons who are assessed on a presumptive basis.

·         ITR-5: For Association of Persons, Body of Individuals, LLPs, etc.

How Do You Compute Your Income For Tax?

Your individual income tax return has to be calculated after certain deductions are made. These deductions can be made under Section 80D for medical insurances, Section 80G for donations, Section 80C for investments/expenditure. Tax rates are also computed after all tax variables and deductions are done at the salary level. Balance tax rate after claim of prepaid tax needs to be paid after tax returns are filed.

How Do You File Your Individual Income Tax Returns?

Individual income tax returns can either be filed in the electronic or the digital paper format. Persons with incomes less than Rs. 5 Lakhs can file their individual income tax returns in the physical form. However, those wishing to claim tax refunds have to compulsorily file in the digital format.

Quoting and linking your Aadhar number with your PAN number is an important criterion before filing your tax.

Steps for Filing Your Individual Income Tax Returns

1.   Creation of your e-filing account on the Government’s income tax website under the Register Yourself tab is the first step in this process.

2.   You need to access the Form 26AS and download the same. Form 26AS is basically your computed tax statement paid by you against your PAN number.

3.    Download the ITR form that is suitable to your income category.

4.   Fill all your income details in the ITR form. These details will be your basic details, bank details and income details. Kindly re-verify your details before moving on to the next step.

5.    Calculate your liability in terms of deductions.

6.    Submit your filled income tax form.

7.   Send a print out of your ITR form to the Income tax department after which you will check the status of the receipt.