HRA Received in FY 2024-25? Read This Before You File ITR

You might know that rent is one of the biggest monthly expenses for most working professionals, in metro & Tier 1 cities especially in Delhi NCR, Bengaluru and Mumbai.

But did you know the Indian taxation laws have special provision for house rent allowance (HRA) crafted for salaried individuals.

So, before you file your Income Tax Return (ITR) for FY 2024-25, take a few minutes to understand how HRA works, how to calculate your exemption and how to claim it the right way.

What is HRA and Who Can Claim It?

House Rent Allowance (HRA) is an allowance that your employer can provide you to help with your house rent expenses.

Even though it’s part of your income, not all of your allowance received is taxable. The tax exemption on House Rent Allowance is allowed under Section 10(13A) of the Income Tax Act, 1961 (“the Act”).

To get HRA exemption, you must satisfy all 3 conditions as given below:

1. Be a salaried employee receiving HRA.
2. Be living in a rented house and paying rent for it.
3. Can only be claimed under the old tax regime, not the new one.

If you receive HRA but live in a house you own, the entire HRA becomes fully taxable. This is because the core purpose of HRA is to compensate for an actual rent expense.

How is HRA Exemption Calculated?

The tax-exempt portion of your rent allowance is calculated based on the lowest of the following 3 amounts:

• Actual House Rent Allowance received from your employer
• 50% of your salary if you live in a metro city like Delhi, Mumbai, Kolkata or Chennai but for all other location, the limit is 40%.
• Rent paid minus 10% of your salary

The term “salary” for this calculation includes your basic salary and if it’s part of your retirement benefits, your dearness allowance (DA) and any commission based on a fixed percentage of turnover.

Let’s read an example to see how this works in real life.

Case Study: Riya is a salaried professional in Bengaluru. Her salary details are as follows:

1. Basic Salary: ₹ 64,000 per month
2. HRA Received: ₹ 32,000 per month
3. Actual Rent Paid: ₹ 27,000 per month

Let’s calculate the valid exemption for Riya after testing the 3 conditions:

1. Allowance received from Employer: ₹ 32,000 x 12 = ₹ 3,84,000
2. 40% of her salary (since Bengaluru is not a metro city): 40% of (₹ 64,000 x 12) = 40% of ₹ 7,68,000 = ₹ 3,07,200
3. Rent paid minus 10% of salary: (₹ 27,000 x 12) – (10% of ₹ 7,68,000) = ₹ 3,24,000 – ₹ 76,800 = ₹ 2,47,200

The smallest amount is ₹ 2,47,200. So, Riya can claim an HRA exemption of ₹ 2,47,200 for the year. The rest of her House Rent Allowance, which is ₹ 3,84,000 – ₹ 2,47,200 = ₹ 1,36,800, will be added to her taxable income.

The Right Way to Claim HRA: Requisite Documents for ITR

Having the right documents is the best way to ensure your claim is valid and to avoid any potential problems.

1. Rent Receipts: Make sure to keep rent receipts as proof of payment, as they are essential for claiming HRA exemption.
2. Rent Agreement: A written rent agreement is not always mandatory but is highly recommended, especially for higher rent amounts.
3. Landlord’s PAN Card: This is a crucial requirement for the reporting purposes at the time of filling ITR.

It’s also a good idea to pay your rent through a traceable method like a bank transfer or UPI. This creates a solid record of your payments, which can serve as a strong backup to your rent receipts.

Is it Possible to Claim HRA and Home Loan Deduction at the Same Time?

The law allows you to claim both House Rent Allowance exemption and on a home loan deduction for a property you own, but it has to make sense and comply with the law concerning both tax exemption and deduction.

The situations can be like ~

1. You have a house in some other city but live in a rented property near your workplace. In this case, when you have purchased a home in one city but live in a rented accommodation in another, perhaps due to work, you can claim both House Rent Allowance and the home loan interest deduction.

2. You stay in a rented place within the same city where you also own a property. This is allowed if you can show a valid reason, for example, your house is far from your office, or it’s under renovation.

Keep in mind that if you own a property in the same city and are not using it or have it vacant, the tax authorities might ask for a valid explanation. Always be prepared to justify your situation with proper documentation and a reasonable cause.

How Do I Declare HRA While Filing My ITR?

If you have submitted your rent receipts to your employer during the year, then the exempted House Rent Allowance amount will be clearly shown in your Form 16, under the allowances exempt under Section 10. In this case, you just need to check this data matches with the ITR filed.

However, if you forgot to submit your rent receipts to your employer, they would have entered your entire House Rent Allowance as taxable, leading to a higher tax deduction at source (TDS) from your salary.

When you file your ITR, ITR filing professional have to manually calculate the exempted HRA amount and enter it in the correct schedule. The extra tax deducted will adjusted against the tax liability or will be refunded to you. Keep all HRA documents received with you. Follow income tax checklist and guide to income tax law.

You don’t Get HRA? Section 80GG for You to Claim Rent Deductions

House Rent Allowance is a benefit only for salaried employees. So, what if you are self-employed or your salary doesn’t include HRA? No need to worry, we have under Section 80GG of the Act for the rescue.

To claim this deduction, you must:

1. Not have received HRA from any employer at any point during the financial year.
2. Not own any residential property in the city where you live or work.
3. File a formal declaration in Form 10BA.

There is an upper limit of this deduction which is the lowest of these three amounts:

• ₹ 5,000 per month (₹ 60,000 annually)
• 25% of your adjusted total income
• Actual rent paid after deducting 10% of your adjusted total income

This is a great option for ITR filing for freelancers, consultants and professionals not covered under House Rent Allowance rules.

Mistakes to Avoid in HRA claims: Professional Tax Advice

1. Reporting Accuracy: Claiming HRA correctly is all about details and honesty. Avoid ITR filing mistake that can lead to a lot of issues like income tax notice.
2. Using fake receipts: Never use fabricated rent receipts. The tax department has systems to verify information and such actions can lead to severe penalties and legal consequences.
3. Not providing the landlord’s PAN: This is one of the most common reasons for House Rent Allowance claim rejections and errors in the ITR filing.

When it comes to HRA, understanding the rules and staying organized with documentation can make a huge difference. Professional tax consultants like Master Brains can offer valuable income tax advisory. They can help you structure your claims correctly and full compliance with the law, giving you peace of mind and assurance.

The last date to file your ITR is coming soon. So, take the time now to get your HRA claims in order your future self will thank you.