EXPLAINED: Income Tax benefits for salaried employees who receive HRA

Income Tax Calculator: While filing the Income Tax Return (ITR), an earning individual tries to get maximum tax exemption. But, to save one's money one needs to know that they should not commit any mistake while filing the ITR. As per the tax and investment experts, a taxpayer generally commits mistake while claiming tax exemption on House Rent Allowance (HRA), especially when he or she is on rent or living in rented accommodation.

Speaking on the income tax benefit for the salaried class who receive HRA; Balwant Jain, a Mumbai-based tax and investment expert said, "For claiming HRA exemption, you need to be actually paying rent for the residential accommodation occupied by you. So, in case you are not paying any rent, you cannot claim tax exemption for HRA. If you are paying rent for the accommodation occupied by your parents, while staying in your own house, you still cannot claim the tax benefit of HRA. Moreover, the accommodation which you are occupying and paying rent for, should not be owned by you. This provision exists, to cover cases where an employee lets out his property to the employer who, in turn, lets it back to the employee."

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The HRA received by a salaried individual is not fully tax-exempt. He or she can claim the HRA exemption on the lowest of the following three items — value of HRA actually received, amount of rent paid that exceeds 10 per cent of the basic salary and 50 per cent of the basic salary, in case the employee is residing in any of the four metro cities or 40 per cent, in case the employee is residing in non-metro cities.

Reminding about the above three items Manikaran Singhal, a SEBI registered tax and investment expert said, "If the rent being paid by a salaried income taxpayer is less than 10 per cent of his or her basic salary, then the salaried individual won't be able to claim any HRA exemption and the HRA amount would become taxable."