The most frequent and main aspect of the pay structure of a salaried person is the House Rent Allowance (HRA). If you reside in a rented house and pay rent to an owner, or your parents, the rent paid can be exempted. Usually, by providing house rent receipts in respect of their rent payment in the last quarter of the financial year, salaried persons seek this exemption through their employer. If your employer has not claimed this privilege, you can also do so while preparing the income tax return (ITR) for the fiscal year. You also have time to prepare your ITR as the last ITR filing deadline for FY20 has been extended to January 10, 2021. You’ll have to determine the exempt HRA amount manually to claim HRA in ITR. Important to remember here is that you can only claim an HRA deduction if you pay house rent costs. The HRA allowance will be entirely taxable for salaried citizens who do not live in rented dwellings. The lowest of the following amounts is the HRA exemption that a salaried person is entitled to receive:
- Original Earned HRA
- For those residing in metro cities, 50 percent of (basic salary + DA) (40 percent for non-metros)
- Actual rent charged – 10% of (basic salary + DA)
After the HRA exemption has been determined, taxpayers can claim it when filing an ITR. Taxpayers are needed to have a break-up of salary in the form of the ITR, which indicates the basic wage, plus all allowances. Then the allowances which are not exempted must be entered. For the HRA, the non-exempt portion of the HRA and all non-tax-exempt allowances must be entered. Important to remember here is that taxpayers will also have to report as an exemption the amount of HRA that they claim.