There are many tax components you need to be clear about and also figure out how to plan your investments to gain maximum returns as well as maximum tax benefits. One such tax component is the tax benefit you can claim from your house rent allowance.
HRA (house rent allowance) is provided to salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. Self employed professionals are eligible for tax deductions under section 80GG of Income Tax Act, 1961.
Here is a simple HRA calculator. It has a field “Rent for Maximum Exemption” which gives the rent that can give you the maximum tax exemption. Even if the rent is above this amount, the exemption will remain same.
It is not essential that you should pay rent only to a landlord to avail your HRA benefits. You can pay rent to your parents or your spouse to claim tax benefits. However, they need to account for the same under`Income from other sources’ and will be entitled to pay tax for the same.
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.