Income Tax News: If you work for a salary, chances are good that your employer has begun requesting evidence of your investment. Even though the deadline for paying income taxes is still months away, the investment proof you provide to your employer can help you save money on your pay because it will be used to determine your monthly wage.
Introduction to Income Tax Department’s Determination
The Income Tax department will, however, determine your real income tax for the Financial Year 2023–2024. As you prepare to provide documentation to your employer, we would like to inform you of an allowance that is included in your pay and can significantly reduce your income tax.
Tax savings come from house rent allowance (HRA)
One such option that allows for tax savings is the house rent allowance. It comes out of your pay as well. You can see an HRA column on your pay stub if you look at it. Although this is a taxable portion of the pay, there are tax savings available. Only those who are paid a salary are eligible for the HRA tax exemption. It is crucial to comprehend this, for that reason.
In what way does HRA offer tax exemption?
Living in a rented home is a requirement for claiming tax exemption (Income Tax Savings) on HRA. In accordance with Income Tax Act Section 10(13A), one may seek a tax exemption from HRA. HRA is subtracted from total income to determine total taxable income.
How is the HRA for tax exemption calculated?
How much tax can you save using HRAs is the question. It is pretty simple to calculate. Using HRA, tax exemption is available on the lowest amount under the three conditions listed below:
- What portion of your pay is HRA?
- HRA is 50% of your base pay if you live in a metro area like Delhi, Mumbai, or Kolkata; in non-metro areas, it is 40% of your base pay.
- The remaining amount after subtracting 10 percent of the annual earnings from the actual annual rent paid for the house.
Method for calculating HRA
Assume you live and work in Delhi, where your monthly rent payment is Rs 15, 000. Your dearness allowance (DA) is Rs 2,000, and your base wage is Rs 25,000. Your company will pay you Rs 1 lakh as HRA in this case. You can deduct up to Rs. 1 lakh in taxes as HRA in this case.
Which records are going to be necessary?
You need to have a current rental agreement in order to take advantage of HRA. The monthly fee, the duration of the lease, and your share of the costs should all be included in the rental agreement. Both you and the landlord, even if they are your parents, must sign the agreement. This agreement must be written on 100 or 200 rupee stamp paper. In addition to the rent receipt, the landlord’s PAN must be provided if the annual rent exceeds Rs 1 lakh. After paying the rent, you ought to receive the landlord’s receipt as well.
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