Income Tax 2023-2024: Want to save income tax? This salary allowance can help you immensely; know how

Income Tax 2023-2024: If you are a salaried person, there is highly likely that your company might have started asking for investment proof. Though the income tax filing deadline is months away, but the investment proof that you submit to your company will help you save money in your salary since the company will calculate your monthly salary based on your investment proof.

However, the actual income tax that you for the Financial Year 2023-24 will be calculated by the Income Tax department.

As you are set to submit document proofs to your company, we tell you about about an allowance that is part of your salary and can help you save income tax considerably.

You need to know the calculation in this write-up.  

Income Tax 2023-2024: House rent allowance (HRA) will save tax

House Rent Allowance is one such tool through which tax savings can also be done. It is also part of your salary.

If you look at your salary slip, a column of HRA will be visible in it.

This is part of taxable salary, but, tax can also saved through this.

Only salaried people get the benefit of tax exemption on HRA.

Therefore, it is important to understand this.

Income Tax 2023-2024: How does HRA provide tax exemption?

The condition for claiming tax exemption (Income Tax Savings) on HRA is that the taxpayer lives in a rented house.

Tax exemption from HRA can be claimed under Section 10 (13A) of the Income Tax Act.

Total taxable income is calculated by deducting HRA from total income.

Income Tax 2023-2024: How to calculate HRA for tax exemption?

The question is, how much tax can you save on HRA (Income Tax Savings)?

Its calculation is very easy.

Tax exemption can be availed through HRA on whichever amount is the lowest in the 3 circumstances given below.

1. What is the share of HRA in your salary?
2. If you live in a metro city like Delhi, Mumbai, Kolkata, then HRA will be 50 per cent of your basic salary, for non-metro cities, it will be 40 per cent of the salary.
3. The amount left after deducting 10 per cent of the annual salary from the annual house rent actually paid.

Income Tax 2023-2024: HRA calculation method

Suppose you work in Delhi, live in the city, and pay Rs 15,000 per month as rent.

Your basic salary is Rs 25,000 and dearness allowance (DA) is Rs 2,000.

In such a situation, you get Rs 1 lakh as HRA from the employer.

In such a situation, you can save maximum tax of Rs 1 lakh as HRA.

Income Tax 2023-2024: Which documents will be required?

To avail the benefit of HRA, you must have a valid rent agreement.

The rent agreement should mention the monthly rent, the time limit of the agreement and the expenses incurred by you.

The agreement must be signed by you and the landlord, even if the landlord is your parent.

This agreement should be on stamp paper of Rs 100 or Rs 200.

If the annual rent is more than Rs 1 lakh, then apart from the rent receipt, it is also mandatory to provide PAN of the landlord.

You should also have the receipt from the landlord after paying the rent.