If you are a salaried individual who lives in a rented house, the rent you pay can help you lower your taxable income. There is something called the House Rent Allowance (HRA) that you can use to save taxes. HRA is usually received as a part of your salary and it can be completely or partially exempt from tax. Even if you have not been able to submit rent receipts to your employer to claim exemption on HRA, it still can be claimed at the time of filing tax returns.
You can use HRA to lower taxes even if you don’t live on rent. If you live with your parents, you can pay rent to your parents and claim tax-saving deductions on the HRA. To do this, you need to get into a rental agreement with them and transfer the rent amount to them as well. But remember, your parents will have to show the rent they receive from you as a part of their income.
The HRA deduction that you can claim can be the minimum amount of the following:
- Actual HRA received
- 50% of basic salary plus DA in metro cities or 40% of the same in non-metro cities
- Actual rent less 10% of salary
One important aspect of claiming HRA is that you need you landlord’s PAN to claim the same. You cannot claim HRA with your landlord’s PAN if the rent you pay is in excess of ₹8,333 per month.
HRA is usually received as a part of salary, but you can still claim tax-saving deductions on the rent you pay if HRA is not a part of your salary breakup. To do this, you will need to make the claim under Section 80GG. Under Section 80GG, the lowest amount of the following three can be claimed:
- ₹5,000 a month
- 25% of total income
- Actual rent less 10% of total income
If you are paying interest on a home loan and also living on rent, you can claim tax-saving deductions on both home loan interest and HRA.