What is HRA?

House Rent Allowance or HRA is a salary component paid to employees by an employer towards the accommodation cost of living in that city. Even though it is a part of your salary, unlike your basic pay, HRA isn’t entirely taxable, subject to conditions (a percentage of HRA is exempted under Section 10 (13A) of the IT Act, 1961).

What is HRA exemption?

The salary or pay for individuals can be defined as the sum of their basic salary, DA (dearness allowance), and any/all other commissions as applicable. HRA deduction calculation for employees residing in a metro will be 50% of the basic salary and is 40% for residence in a non-metro city. In case of salaried individuals without a DA component or commissions in their remuneration, the HRA allowance will be 40 or 50% of their basic pay.

The actual amount which you can claim for deductions under HRA will be the lowest of the three provisions:
(i) HRA received (ii) Rent paid minus 10% of (Basic + DA) (iii) 40% of (Basic + DA) (50% in case of Mumbai, Chennai, Kolkata, and Delhi).

HRA in new tax regime

The new regime has witnessed a lot of changes when compared to the old regime. However, one of the biggest changes that are to be pointed out is the fact that the new regime will not have some of the exemptions or deductions from the last tax regime. These include the House Rent Allowance or HRA as well. Thus, if you opt for the new tax regime and file your taxes accordingly, you will not be able to enjoy the deduction for HRA.

Documents required to claim tax exemption on HRA

The main document that has to be provided at the time of the claiming tax exemption for HRA is rent receipts/rental agreement. Being a taxpayer, you will be eligible for this exemption even if you are paying rent to your parents.

As the taxpayer, you will have to submit your rent receipts/rental agreement to avail of tax exemption on HRA. The PAN details of the landlord/landlady to be provided in the cases where the annual rent of the housing unit exceeds the mark of Rs.1 lakh.