Income Tax News: As March 31st looms closer, saving tax becomes a top priority for many salaried individuals. But fret not, there are simple yet effective ways to claim tax exemptions and reduce your tax burden. This article explores two popular strategies: claiming HRA (House Rent Allowance) and leveraging home loan benefits.
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Understanding HRA
- What is HRA? It’s an allowance provided by employers to help cover your rent expenses. HRA falls under tax-exempt income, offering significant tax benefits.
- Who can claim HRA? Almost all salaried individuals (private and government) receiving HRA in their CTC are eligible.
- Claiming HRA: You can claim HRA exemption under Section 10(13A) of the Income Tax Act. Only your basic salary and dearness allowance (DA) are considered for HRA claim.
Maximising Your HRA Claim
- Rent Amount: If your annual rent is less than ₹1 lakh, submit rent receipts to claim up to ₹1 lakh. For rent exceeding ₹1 lakh, provide your landlord’s PAN and a rent agreement. Remember, the rent amount becomes your landlord’s income, subject to taxation.
- HRA Calculation: Companies often request rent receipts before year-end. The minimum HRA exemption is calculated based on three rules: the lowest of HRA received, 50% of basic salary (metros) or 40% (elsewhere), or 10% of actual rent paid.
Living with Parents? No Problem!
Even if you reside with your parents, you can still claim HRA benefits by paying them rent:
- Conditions: Your parents must genuinely receive and declare the rent income.
- Documentation: For rent exceeding ₹1 lakh annually, submit your parents PAN and a rent agreement. The rent amount adds to their income, but if they lack other income, they might not incur any tax liability.
Home Loan Benefits
- Principal Repayment: Claim a deduction of up to ₹1.5 lakh under Section 80C for principal repayment on your home loan.
- Home Loan Interest: Enjoy an additional tax exemption of up to ₹2 lakh under Section 24B on the interest paid. This translates to a total benefit of up to ₹3.5 lakh!
- Joint Home Loan: Spouses or siblings with a joint home loan can each claim individual tax benefits. Inform the Income Tax department and submit an interest letter from the bank as proof.
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