Income Tax: Among several benefits, one of the main advantages of choosing the old tax regime is that it enables you to claim exemption for house rent allowance (HRA). Under the old tax regime, HRA is exempted under section 10(13A) of Income Tax Act for salaried individuals, states information on the Income Tax India website. However, this exemption is not available in the new tax regime.
These are some of the key things which taxpayers should keep in mind with regards to house rent allowance.
HRA: Things to keep in mind
These are some points which salaried individuals should keep in mind while claiming house rent allowance (HRA). Firstly, make sure to sign a rent agreement with your landlord. Second. You can ask for the landlord’s permanent account number (PAN).
Third – make sure you pay rent via bank transfer instead of cash. Finally, you should deduct TDS as per section 194IB which comes into effect when the rent paid is more than ₹50,000 per month. The rate of TDS is 2 percent (5 percent till Sept 20, 2024).
Notably, taxpayers can claim exemption for HRA along with the interest on home loan under the old tax regime in the same year. “If a salaried person is paying high rent, it is advisable to opt for the old tax regime,” said CA Pratibha Goyal, partner of PD Gupta and Company, a Delhi-based CA firm.
How is HRA calculated?
One can use the house rent allowance (HRA) calculator given on the income tax India’s website which one can access here. Here, you have to enter some details including basic salary, dearness allowance (DA), commission, HRA received and rent paid. One must also check whether one resides in a metro city or not.
The calculator, thereby, will indicate the exempted house rent allowance and taxable house rent allowance.
“HRA exemption is calculated as per a formula, wherein you get the least of the following: HRA received, 50 percent or 40 percent of the salary (based on whether you live in a metro city or not) and excess of rent paid over 10 percent of salary, where ‘salary’ refers to basic salary plus dearness allowance,” added CA Pratiba Goyal.
Visit here for all personal finance updates.
