ITR Filing: Key Points for Claiming HRA Exemption in Your Income Tax Return
Taxpayers opting for the old income tax regime in India can benefit from the House Rent Allowance (HRA) exemption while filing their returns for the fiscal year 2025-26. This exemption is not available under the new tax regime. The HRA exemption allows eligible taxpayers to reduce their taxable income, thereby lowering their overall tax liability.
HRA Exemption Details
For the fiscal year 2025-26, the HRA exemption is calculated based on the location of the rented accommodation. In metro cities like Delhi, Mumbai, Kolkata, and Chennai, the exemption is determined using 50% of the taxpayer’s salary. For other locations, the limit is set at 40% of salary. The exemption applies only to salaried employees who receive HRA as part of their compensation and live in rented properties.
The exemption amount is limited to the lowest of three calculations: the actual HRA received, the rent paid minus 10% of the basic salary, or 50% of the basic salary for those living in metro cities and 40% for those in non-metro areas.
Important Considerations for HRA Claims
Taxpayers should be aware of several key factors when claiming HRA. If the monthly rent exceeds Rs 50,000, tenants may need to deduct tax at source and comply with specific reporting requirements. When rent is paid to relatives, the arrangement must be genuine and properly documented. The relative receiving the rent should disclose this income in their income tax return, as tax authorities increasingly utilize data analytics for verification.
Taxpayers are advised to retain all relevant documentation, including rent receipts, lease agreements, and proof of rent payments. These documents may be required during assessment or verification processes.
Claiming HRA During Tax Filing
To claim HRA while filing tax returns, taxpayers must inform their employer if they choose the old tax regime. They need to provide details such as rent paid, rent receipts, the rent agreement, and the landlord’s PAN if the annual rent exceeds Rs 1,00,000. If these details were not submitted during the year, taxpayers can still claim the HRA exemption when filing their income tax return, provided they maintain adequate supporting documentation.
For FY 2025-26, the return utility includes a new Schedule EA for reporting HRA exemptions. Taxpayers must now enter detailed information, including salary, HRA received, rent paid, and the applicable percentage of salary. This change aims to enhance verification processes and minimize unsupported HRA claims.
The Income-tax Rules, 2025 will expand the list of cities eligible for the higher 50% salary threshold to include Bengaluru, Hyderabad, Pune, and Ahmedabad, effective from 1 April 2026. This amendment will apply to FY 2026-27 and beyond.
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