India is set to become the youngest country by 2020 which means a large percentile of this population will move to and from cities in search of better employment opportunities. Being able to live in hotels or buying a house everyone is clearly not a feasible option, the next best thing is renting a property. But did you know you can can save on taxes by showing you rent a house? Well, Enter House Rent Allowance. (HRA)
What is House Rent Allowance?
House rent allowance is a claim to lower taxes. If you are a salaried individual living in a rented property the rent can be partially or completely exempted through the HRA.
How is it calculated?
The deduction is based on a system of least.
It is the least of the following amounts:
Actual HRA received;
50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
Actual rent paid less 10% of basic salary + DA (Dearness Allowance)
No House Rent Allowance from employer?
If your employer doesn’t provide you with HRA there is an alternative.
Under section 80GG you can claim dedcution if you are salaried or self employed and have not received HRA throughout the year you are claiming 80 GG for.
The least of the following is considered as the deduction:
Rs 5000 per month.
25% of adjusted total Income
Actual Rent less 10% of adjusted total Income
*Though what qualifies as total income gas to be rechecked with current guide lines.
The House Rent Allowance hack.
You can even file for HRA while living with parents. All you have to do is get into a legal rent agreement with your parents and send the amount to their account, even though they will have to show it on their income tax on a whole the family will save a lot of money that drains out as tax.