Living in a Rented House? Know the related tax provisions and exemptions.
Q&A
I. Can I claim tax benefit of HRA if I have my own house?
This depends on particular circumstances:
- If you own a house and you are living in the same house, you cannot enjoy the HRA tax benefit as one cannot pay rent to oneself.
- If your house is under construction and living in a rented place then you will be entitled to claim tax benefit of HRA. Once the construction of home is complete and you start residing in it, the HRA benefit stops.
- In case you have a ready house for occupation but cannot reside in it for genuine purpose (employment/business/profession reasons), you can claim HRA even if you are residing in a rented apartment in the same city where your house is located and that ready house will be treated as self-occupied property under Section 24. For other reasons, though you are entitled to HRA benefit if you are paying rent but your ready property will be deemed to be let out and will attract notional income.
II. Whether HRA calculation to be done on monthly basis or annual basis?
There are four variables in HRA tax calculations namely,
- salary (i.e., basic pay plus DA)
- HRA received
- rent paid and
- The city of residence (whether metro or non-metro).
In case all of the four remain the same throughout the year, the HRA tax exemption calculation is to be done on ‘annual’ basis. On the other hand, if there is a change in any of the variable during the year then HRA tax exemption calculation is to be done on monthly basis.
III. Can HRA be claimed if you stay with parents in their house? What if I am living in the house of my spouse?
Yes, one will be entitled for HRA tax exemption, but your parents, being the owner of the house is assessable for the rental income derived from the house. But do ensure that such transaction should be genuine & not with an intention to evade tax.
In case you are living in a house owned by your spouse, HRA tax benefit cannot be claimed as no commercial transactions can occur between Husband & wife.
IV. Can both the working spouses claim HRA tax benefit separately?
If both of them are paying rent and landlord issues either two separate rent receipts or only one receipt specifying the amount or proportion paid by each, then both husband and wife are entitled for HRA exemption according to the amount of rent paid.
V. How to avail HRA exemption if I am living as a paying guest?
HRA exemption is solely for payment of house rent and not for other amenities like eatables and other facilities. In the case of Paying Guest, you pay a consolidated rent including other amenities. You should separate the portion of rent for claiming HRA exemption.
VI. What are the documents required to claim HRA exemption?
To claim HRA exemption, you need to submit a self-declaration to your employer at the beginning of the year stating the amount that you are pay to your landlord as house rent. At the end of the year, your employer will be asking for original rent receipts and may be a photo copy of your rent agreement.
VII. What if I could not submit my rent declaration to my employer or what if the employer does not consider the HRA tax benefit while deducting tax at source?
There is nothing to worry in case you fail to submit declaration to your employer or HRA tax exemption is not considered by your employer. You can still claim it while filing your return of income and get the refund of excess tax deducted at source from your salary. Just remember to keep rent receipts & lease agreement safely in your records, in case the AO asks for them later.
VIII. How can a self-employed person claim tax benefit for the rent paid?
As the self-employed person doesn’t receive any salary, so there is no HRA and consequently question of HRA exemption under section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules doesn’t arise. However, to take care of such a situation, there is a separate provision in the Income Tax Act, whereby a person not in receipt of HRA but incurring rent expenses for his residence can claim a deduction under section 80GG. Please refer the above diagram.
