Are you tired of paying hefty taxes on your hard-earned salary? If you're a salaried employee, you may be eligible to use House Rent Allowance (HRA) to reduce your taxable income and save on taxes.
HRA is a component of your salary that is paid by your employer to cover your rental expenses. If you're living in a rented house and receive HRA as part of your salary, you can claim a deduction on it under Section 10(13A) of the Income Tax Act.
The amount of deduction you can claim depends on the following factors:
Actual HRA received from your employer
Rent paid by you
Actual rent paid minus 10% of your basic salary
Here are the steps to calculate and deduct HRA under the Income Tax Act:
1. Determine the actual amount of HRA received by the employee from the employer.
2. Determine the least of the following amounts:
a. Actual HRA received from the employer
b. Rent paid minus 10% of salary (basic salary plus dearness allowance)
c. 50% of salary (basic salary plus dearness allowance) if the employee resides in a metro city (Mumbai, Delhi, Kolkata, Chennai, Hyderabad, or Bengaluru) or 40% of salary if the employee resides in a non-metro city.
3. The amount arrived at in step 2 - is the HRA exemption amount.
The remaining amount of HRA (actual HRA received minus HRA exemption amount) is taxable as part of the employee's salary.
4. The taxable amount of HRA is added to the employee's gross salary for the purpose of calculating income tax.
However, keep in mind that in order to claim HRA exemption,
the employee must actually be paying rent for a house.
The rent should be paid to the landlord by the employee and the employee should be able to provide proof of rent paid, such as:
rent receipts or rent agreement.
Additionally, if the employee owns a house and is not paying rent, HRA cannot be claimed for that house.