It is tax time! July 31st is the deadline to pay taxes. While you are filing income tax returns as a salaried person, House Rent Allowance (HRA) is one of the frequently acknowledged allowances you receive. Hence, if you are living on rent, you are eligible to claim exemption on it.
You have to submit the documents such as rent agreements and rent receipts to your employer so that he/she doesn’t deduct higher (Tax Deducted at Source) TDS from your salary. If you haven’t, you can still claim tax exemption benefit available on HRA while filing (Income Tax Retuns) ITR.
If you haven’t submitted your HRA documents to your employer, the HRA portion will be displayed in your Form-16 as fully taxable. The taxable amount of your salary as shown in Form 16 will be higher than your calculations.
What should you do in this scenario?
In order to claim HRA exemption you will first have to calculate the taxable amount of the allowance. The minimum tax exempt portion of HRA has to be calculated based on the following precedents:-
1. Actual HRA received.
2. 50% of salary if living in metro or 40% for non-metro cities (Your basic salary x 50% x 12).
3. Excess of rent paid annually over 10% of annual salary.
How is actual HRA calculated?
Let us assume your monthly HRA is 15,000 Rs. Then, the actual HRA would be calculated like this. 15000 x 12 = 180000
The income from salary has to be filled in five columns in ITR. The first part is for salary details such as allowances, perquisites and profit in lieu of salary. You have to enter details of the “basic” part of your salary.
The second part is for details of “allowances not exempt”. Here you have to enter the sum total of special allowance and taxable part of HRA. Special allowance is fully taxable whereas transport allowance will be fully taxable from FY-2018-19.
The third part is for “Value of perquisites” and the fourth part is for “Profits in lieu of salary”.
From this year onwards ITR-1 requires you to report the tax exempted incomes too. Hence, you ought to add details of tax exempt part of HRA under section 10(13A) and transport allowance under 10(14) (ii).
Points to bear in mind
You don’t have to send any documents to the department while filing ITR but sometimes the tax department might ask for evidence of HRA exemption.