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Taxpayers can reduce tax liabilities by claiming House Rent Allowance (HRA) exemptions. Salaried individuals can claim HRA for rent paid to parents if conditions are met.
Income Tax Return: HRA Exemption.
Taxpayers are always keen on minimizing their tax liabilities. The Income Tax Act 1961 offers various tax benefits, including House Rent Allowance (HRA), which can significantly reduce your tax burden.
The ITR filing is set to start on April 1, 2025 for AY 2025-26. When the offline utilities and online forms are enabled on the e-filing portal, the income tax department will notify on its website.
The last date to file the income tax return will be July 31, 2025, for those who do not require audit.
Claiming HRA Exemption For Rent Paid To Parents
Salaried individuals receiving HRA as part of their Cost To Company (CTC) can claim exemptions on rent paid to their parents. However, certain conditions must be met:
– Proof of Residency and Rent Payment: You must reside at the property owned by your parents and make timely rent payments.
– Valid Rental Agreement: A legally binding rental agreement should be in place, and rent payments should be transferred to your parents’ bank account.
– Declaring Rental Income: Your parents are required to declare the received rent as income while filing their Income Tax Return (ITR).
– Rent Alignment with Market Rates: The rent amount should be in line with prevailing market rates. Inflated rent amounts may attract scrutiny from tax authorities.
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.
