The goal of taxpayers is always to reduce their tax obligations. One of the many tax perks provided by the Income Tax Act of 1961 is the house Rent Allowance (HRA), which can drastically lower your tax liability. For AY 2025–2026, the ITR filing is scheduled to begin on april 1, 2025. The income tax agency will post a notice on its website when the online forms and offline utilities are enabled on the e-filing portal.
Those who do not need an audit have until July 31, 2025, to file their income tax returns.
Claiming HRA Exemption For Rent Paid To Parents
Rent paid to parents is deductible for salaried workers who receive HRA as part of their Cost To Company (CTC). However, a few prerequisites need to be fulfilled:
Proof of Residency and Rent Payment: You have to live on your parents' home and pay your rent on time.
Valid Rental Agreement: Rent payments should be deposited into your parents' bank account, and there should be a binding rental agreement in place.
- Declaring Rental Income: When your parents file their income tax return (ITR), they must include the rent they received as income.
Alignment of Rent with Market Rates: The rent amount has to correspond with the going rates in the market. Tax officials may look at inflated rent amounts.
Calculating Your HRA Exemption
The HRA exemption you can claim is the lowest of the following three amounts:
1. Actual HRA received from your employer.
2. 50% of (Basic Salary + DA) for residents of metro cities (Delhi, Mumbai, Kolkata, Chennai) OR 40% of (Basic Salary + DA) for residents of non-metro cities.
3. Actual rent paid - 10% of (Basic Salary + DA).
Example Calculation
Let's assume:
- Basic Salary = ₹50,000 per month
- DA (Dearness Allowance) = ₹5,000 per month
- HRA received from employer = ₹25,000 per month
- Rent paid = ₹20,000 per month
- City = Bangalore (Non-Metro)
Step-by-Step Calculation
1. Actual HRA received = ₹25,000 × 12 = ₹3,00,000
2. 40% of (Basic + DA) as Bangalore is a non-metro city: (₹50,000 + ₹5,000) × 40% = ₹22,000 × 12 = ₹2,64,000
3. Actual rent paid - 10% of (Basic + DA): (₹20,000 × 12) - (10% of (₹50,000 + ₹5,000) × 12) = ₹2,40,000 - ₹66,000 = ₹1,74,000
Therefore, the HRA Exemption = Lowest of ₹3,00,000, ₹2,64,000, and ₹1,74,000 = ₹1,74,000
The remaining HRA (₹1,26,000 = ₹3,00,000 - ₹1,74,000) will be taxable.
Those who do not need an audit have until July 31, 2025, to file their income tax returns.
Claiming HRA Exemption For Rent Paid To Parents
Rent paid to parents is deductible for salaried workers who receive HRA as part of their Cost To Company (CTC). However, a few prerequisites need to be fulfilled:
Proof of Residency and Rent Payment: You have to live on your parents' home and pay your rent on time.
Valid Rental Agreement: Rent payments should be deposited into your parents' bank account, and there should be a binding rental agreement in place.
- Declaring Rental Income: When your parents file their income tax return (ITR), they must include the rent they received as income.
Alignment of Rent with Market Rates: The rent amount has to correspond with the going rates in the market. Tax officials may look at inflated rent amounts.
Calculating Your HRA Exemption
The HRA exemption you can claim is the lowest of the following three amounts:
1. Actual HRA received from your employer.
2. 50% of (Basic Salary + DA) for residents of metro cities (Delhi, Mumbai, Kolkata, Chennai) OR 40% of (Basic Salary + DA) for residents of non-metro cities.
3. Actual rent paid - 10% of (Basic Salary + DA).
Example Calculation
Let's assume:
- Basic Salary = ₹50,000 per month
- DA (Dearness Allowance) = ₹5,000 per month
- HRA received from employer = ₹25,000 per month
- Rent paid = ₹20,000 per month
- City = Bangalore (Non-Metro)
Step-by-Step Calculation
1. Actual HRA received = ₹25,000 × 12 = ₹3,00,000
2. 40% of (Basic + DA) as Bangalore is a non-metro city: (₹50,000 + ₹5,000) × 40% = ₹22,000 × 12 = ₹2,64,000
3. Actual rent paid - 10% of (Basic + DA): (₹20,000 × 12) - (10% of (₹50,000 + ₹5,000) × 12) = ₹2,40,000 - ₹66,000 = ₹1,74,000
Therefore, the HRA Exemption = Lowest of ₹3,00,000, ₹2,64,000, and ₹1,74,000 = ₹1,74,000
The remaining HRA (₹1,26,000 = ₹3,00,000 - ₹1,74,000) will be taxable.
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