House Rent Allowance or HRA—a key part of the salary—can be claimed by salaried individuals who live in rented houses to lower their taxes. The reduction in taxes while claiming HRA can be partially or wholly.

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A part of the HRA is exempt under section 10(13A) of the Income Tax Act, 1961. The employer reduces the exempted portion from the taxable salary while calculating the income taxes.

For individuals who don’t live in rented accommodation, this allowance is fully taxable.

Also read: How to check income tax refund status

While filing ITR, employees are required to provide salary break-up to the department to show the HRA which he/she is receiving. The HRA is linked to the amount of salary while he/she receives, and hence it increases with rising salary.

The HRA exemption which the taxpayer is eligible to receive is the least of the following amounts, according to ClearTax:

1. The actual HRA received

2. 50 percent of

3. Actual rent paid less than 10 percent of basic salary + DA

Taxpayers can avail of the HRA benefit on the submission of rent receipts, signed by the house owner, to the employer. Additionally, they will have to provide the Permanent Account Number (PAN) of the house owner if the rent paid during the year is more than Rs 1 lakh.

After calculating the HRA exemption, taxpayers can claim it while filing ITR.

In the correct ITR form, they are required to enter the break-up of salary, which means the basic salary including all allowances. The taxpayer will then have to enter the number of allowances that are not exempt. Under this, they are required to enter the non-exempt part of HRA and add to any other allowances they receive which are not tax-exempt, according to Policabazaar.

Taxpayers will also have to declare the amount of HRA which they are claiming as an exemption.

In ITR 1, taxpayers can click on the fifth tab under 'taxes paid and verification' and enter the option under 'exempted income'. This contains the option for 'HRA' under the 'others' button. Taxpayers should enter an exempt portion of HRA under this heading.

(Edited by : Ajay Vaishnav)

First Published:Jan 4, 2021 11:52 AM IST