HRA Exemption Explained: Eligibility, Calculation and Claiming with Home Loan

House Rent Allowance (HRA) is an important part of the salary. Many salaried individuals search for distinct ways to save tax and HRA, which can assist in saving income tax. HRA is a type of tax, implemented on an employer to manage his/her rental expenses. However, the release of the new tax regime has created confusion in the minds of employers about whether they can get HRA tax exemption benefits under the new tax regime. Is it possible to claim HRA and home loan benefits at the same time? How to calculate part of your HRA that is tax-free?.

Are HRA tax exemption benefits available under the new tax regime?

HRA tax exemption benefits are not available under the new tax regime. Section 115BAC, which administers the rules related to the new tax regime, prohibits an individual from claiming HRA exemption.

An individual working in a daily salary job, who wants to pay the income tax as per the new tax regime, can claim the following tax exemptions. They are as follows:

• Section 10(5) – Leave Travel Concession
• Section 10(13A) – House Rent Allowance\
• Section 10(14) – Covers special allowance details in Rule 2BB(such as children’s education allowance, hostel allowance, uniform allowance etc.
• Section 24(b) – Interest paid on home loan
• 57(iia) – Family pension
• Deductions under Chapter VI-A containing Section 80C, Section 80D, etc., except Section 80CCD(2).

Is It Possible to Claim HRA and Home Loan Benefits at the Same Time?

Under the old tax regime, both HRA tax exemption and deduction on home loan interest were available. Still, several people working on a daily salary get confused about is they can claim both simultaneously or not. For example, a salaried person residing in a rental apartment some distance from their office, while parents reside at their homes, and the person is submitting the home loan EMI.

There are no restrictions on claiming HRA and interest on a home loan together, even if both houses are in the same city. However, there should be enough reasons for you not to stay in the house you bought. Often, such claims are closely monitored by the Income Tax officials. They can disallow some part of the claim if they are not satisfied, especially if the amount is relatively higher.

However, you should maintain proper records and necessary documents, like the sales deed, completion certificate, etc., to justify the claim in case any query is raised.

How to Calculate Part of Your HRA That is Tax-Free?

The Income Tax Act explains how to calculate HRA exemption under the old tax system. As per the rules, the lowest of the following three amounts will be tax-free:

• Actual HRA received from an employer
• 50% of salary if living in metro cities or 40% in non-metro cities
• Excess of rent paid annually over 10% of annual salary.

What documents are required to claim HRA tax exemptions?

For salaried individuals, the documents stated below are required to claim a HRA tax exemption:

• Rent Agreement
• Rent receipts
• PAN of landlord (if annual rent exceeds Rs. 1 lakh)
• Proof of rent payment (especially when paying rent to relatives)
• TDS deduction on rentals if rent exceeds Rs. 50,000 per month