5 things you must know about the most common allowance

#1: The HRA allowance you receive from your employer is not fully tax-deductible. It may be fully or partially exempt from tax.

The least of the following three is taken to be exempt from tax. The remainder of your HRA allowance is added back to your taxable salary.

  • HRA received from your employer
  • Actual rent paid minus 10% of Salary
  • 50% basic salary for those living in metro cities (40% for non-metro cities)

Try out our free HRA calculator here.

#2: You can claim HRA by showing that you are paying rent to your parents

If you don’t  live in a rented accommodation, but live with your parents, and are given HRA,  you can still make use of this allowance.

For this though, your parents must be owners of the property you live in and must show this in their income tax return as rental income.

#3: HRA can be claimed directly on your income tax return

Forgot to submit the rent receipts to your employer at the time of proof submission? Well, you can still claim HRA while filing your income tax return. Adjust your taxable income to include HRA and recalculate tax on the lowered taxable income. If tax has been deducted in excess, you can claim a refund on the money.

#4: Landlord’s PAN is compulsory to submit if it exceeds Rs.8,333

A new notification from the Income Tax Department requires all tenants who pay rent in excess of Rs.1,00,000 per year to mention landlords’ PAN compulsorily in the income tax return. This is to deter landlords’ from hiding rental income in their  income tax return.

#5: HRA is independent of home loan deduction

Homeowners paying back on their home loan and getting HRA as part of their salary can avail both the house property-related tax benefits to lower their taxable income.

Want to know about other allowances that are part of your payslip. Read more on our Salary guide here.

Feel free to write to support@cleartax.in if you have any queries  about taxes. We’d be happy to help you. And sign up for our weekly newsletter to get tax tips delivered straight to your inbox.


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2 Responses to 5 things you must know about the most common allowance

  1. abhilash June 22, 2015 at 8:18 pm #

    Hi i have a home loan and staying in rented house , can i claim both loan installment , interest on loan and HRA while calculating taxable income

    • cleartax-team June 23, 2015 at 5:26 pm #

      yes you can – provided you meet all the conditions listed to claim. You can read in detail here cleartax.in/house-property