How to Save Income Tax on HRA?

 If you receive house rent allowance (HRA) as part of your salary, you may be able to claim tax deductions on it to reduce your tax liability. Here are some tips on how to save income tax on HRA:

Calculate your HRA exemption

The first step in saving tax on HRA is to calculate the amount of exemption you are eligible for. The exemption is calculated as the least of the following:

  • The actual HRA received

  • Rent paid minus 10% of basic salary

  • 50% of basic salary (for those living in a metropolitan city) or 40% of basic salary (for those living in a non-metropolitan city)

For example, if you receive a basic salary of Rs. 50,000 per month and pay a rent of Rs. 20,000 per month, your HRA exemption would be calculated as follows:

HRA exemption = min (Rs. 20,000, Rs. 20,000 - (10% x Rs. 50,000), 50% x Rs. 50,000)

= min (Rs. 20,000, Rs. 15,000, Rs. 25,000)

= Rs. 15,000

In this case, you would be able to claim a tax deduction of Rs. 15,000 on your HRA.

Keep proof of rent paid to save income tax on HRA

To claim the HRA exemption, you must have proof of the rent paid. This could be in the form of rent receipts or a rent agreement for HRA. It is important to keep these documents safe and readily available, as the tax authorities may ask for them as proof of your claim. 

Claim HRA exemption in your tax return

To claim the HRA exemption, you need to fill out Form 12BB and submit it along with your tax return. In the form, you need to provide details of your HRA, basic salary, and rent paid.

Consider switching to a lower rent

If you are paying a high rent, you may be able to save on tax by switching to a lower rent. This would reduce the amount of HRA exemption you are eligible for, but it could still result in a net savings in tax if the reduction in HRA exemption is lower than the tax saved by paying a lower rent.

Claim tax deductions on home loan interest

If you have taken a home loan to purchase a house and are paying rent for your current accommodation, you may be able to claim a tax deduction on the interest paid on the home loan. The deduction is available under Section 24 of the Income Tax Act and is limited to Rs. 2 lakh per financial year.

If you don’t have a rent agreement or want to renew the rent agreement. So don’t worry, because here you will get the solution to all your troubles. We already have so many blogs such as Lease Expires, types of rent agreement, cost of rental rental, and many more.

Claim tax deductions on house rent paid for par, ents

If you are paying rent for your parents, you may be able to claim a tax deduction on the rent paid under Section 80GG of the Income Tax Act. The deduction is available to individuals who do not receive HRA as part of their salary and is limited to Rs. 5,000 per month or 25% of the total income (whichever is lower).

Claim tax deductions on house rent paid for dependent family members

If you are paying rent for a dependent family member, you may be able to claim a tax deduction on the rent paid under Section 80GGC of the Income Tax Act. The deduction is available to individuals who do not receive HRA as part of their salary and is limited to Rs. 5,000 per month or 25% of the total income (whichever is lower).

Conclusion

In conclusion, there are several ways in which you can save tax on HRA by claiming exemptions and deductions. These include calculating your HRA exemption, keeping proof of rent paid, claiming the HRA exemption in your tax return, switching to a lower rent, claiming tax deductions on home loan interest, and claiming tax deductions on rent paid for parents or dependent family members. By taking advantage of these tax saving strategies, you can reduce your tax liability and keep more of your hard-earned money in your pocket.


Written by Mohit Mehra

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