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Simar Nagi | 13 Feb 2023

How Rent Receipt Plays a Crucial Role in Claiming HRA Tax Benefits?

How Rent Receipt Plays a Crucial Role in Claiming HRA Tax Benefits?

Table of Contents

  1. How to calculate HRA
  2. Rent receipts for claiming HRA tax benefits
  3. Claiming HRA benefits
  4. HRA Rent Receipt Format
  5. Extent can one claim HRA


You must have noticed that the HR department asks for your rent receipts when you join an organisation. Many employees tend to get confused as to the purpose of demanding receipts. Well, today, we are here to completely demolish your confusion. In order to claim the house rent allowance (HRA), the HR department requested the rent reciepts so that the receipts could be used as evidence for verifying the same. Once they are confirmed, the employer can provide the deduction and allowance. Based on the HRA rent receipt, an HRA allowance is calculated. 


How to calculate HRA?

As per the income tax rules, the tax exemption for HRA is the minimum of-

  • Actual HRA received

  • 50% of the basic salary (for metropolitan cities) or 40% (in the case of non-metro cities). 

  • Actual rent paid less 10% of basic salary 


In order to get a better picture, let's take an example to understand, Let's suppose Mr. Z lives in Mumbai in a rented property and pays a monthly rent of Rs 18,000. It leads to Rs 2.16 lakhs annually. 

His monthly income is:

Basic Salary 

  Rs-50,000 

HRA

  Rs- 15,000  

  Conveyance Allowance 

Rs-2000 

Special Allowance

Rs-3000

  Leave Travel Allowance

Rs-5000

Total Earnings

Rs-75,000 

The tax-exempt part of Mr. Z would be the lowest of the following when considering his earnings annually:

  Actual HRA Component of Salary

  Rs 15,000*12= Rs 1.80 Lakh

  50% of his basic salary, as he stays in Mumbai.

  50% * 50,000= Rs 2.5 lakh

  Actual rent paid - 10% of basic salary

  (Rs 18,000*12) - (10%* Rs 50,000*12)= Rs 2.6 lakh - Rs 60,000= Rs 1.62 lakh

Since Rs 1.62 lakh is the lowest amount, this is the amount of tax exemption Mr. Z can receive on HRA. The remaining HRA sum will be taxed under his income tax bracket.

Also Read: How to Pay Property Tax in Mumbai?


What is the role of rent receipts for claiming HRA tax benefits?

In this blog, we will help you understand rent receipt in terms of logic and its economics. Rent receipts act as evidence between landlord and tenant. These receipts must be obtained by the salaried employee in order to qualify for tax benefits under the House Rent Allowance. 

Employees can claim a percentage of relief from the government for reducing tax liability. To receive this benefit, the rent should be more than Rs 3000. Despite having a home in another city, if the employee stays on rent because of the office, they can claim HRA benefits and tax deduction benefits against the principal amount and interest on the loan they availed for their home back in whichsoever city. 

Also Read: Easy-to-follow tricks to save money on the property tax bill


Points to remember when claiming HRA benefits

An employee who wishes to claim HRA benefits must not own property in the name of their spouse, child, or Hindu Undivided Family. HRA dedication cannot be claimed if an employee owns a property and earns rent from such property. 

The HRA rent receipt must include the below-mentioned components:

  • Tenant's name 

  • Landlord's name

  • The address of the property

  • The amount of the rent

  • The payment date

  • The mode of payment

  • If the annual rent amount exceeds Rs 1 lakh, then the PAN number of the landlord is required.

  • A revenue stamp is needed if the rent is paid in cash, which amounts to more than Rs 5000/per receipt.

  • Signature of the landlord

  • Signature of the tenant. 

Also Read: Property Tax Guide In India 2022 – Calculation, Types, & Online Payment


HRA Rent Receipt Format 

If you wish to know the rent receipt format, below is the image. You can use the format for creating rent receipts. And not to forget, using a revenue stamp is necessary.

Also Read: Different ways of executing a rent agreement: notarized and registered


To what extent can one claim HRA?

According to Rule 2A of the IT Act of 1962, the minimum HRA tax advantage that can be claimed is the HRA received by the employer, or 50% of the salary for employees living in metro areas (or 40% elsewhere), or the actual rent paid, less 10% of the salary.

Also Read: Selling a land? Save Income Tax Like a Pro!

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