How to claim HRA benefits while you work from home?

A look at your HRA benefits and tax liability status in the COVID-19 scenario.

How to claim HRA benefits while you work from home

The pandemic has now made us come to terms with the ‘new normal’. All these years prior to COVID-19, an individual generally moved from a small town to a metro city for work. But now, they have got a chance to relocate to their home town and work from there. 

Working from home (WFH) has an impact on employees’ HRA (House Rent Allowance) and can increase their tax liabilities. You, as an employee, could be experiencing different scenarios due to this relocation. You save on rent as you leave your work location, or you pay rent to your parents in your ‘home location’. 

It is important to note that tax exemption can be claimed on HRA, if a person pays rent for their accommodation. Tax exemption would be the least of these three figures:

  1. Actual HRA received
  2. 50% or 40% of salary in case of metro or non-metro cities respectively
  3. Excess of rent paid over 10% of basic salary

Related: HRA: Everything you need to know about it

So, if you are still being paid HRA and you are at your ‘home location’, you could pay rent to your parents and claim HRA exemption. For this, you will need to provide a rent receipt and your parents need to show their ‘rental income’ if they belong to the taxable income slab. Entering into a monthly rental agreement with your parents is prudent for tax officers to relate to the expense. For most though, the savings on rent due to relocation to one’s home base could increase their taxable income as they don’t have to pay rent while being paid HRA. 

Related: Home loan vs HRA: Which offers higher tax savings?

By way of example, let’s assume a person receives Rs 20,000 as HRA and pays the same as rent. Now due to COVID-19, no rent is paid for a year and their taxable income goes up by Rs 2,40,000. Be aware of this increased income, and the increase in taxable income. HR generally deducts this tax at the end of the financial year from the employee’s salary. 

Hence, take appropriate decisions and provide the necessary proof to continue availing of HRA exemptions.

Related: Buying a home in your hometown or in a big city: What makes financial sense? [Premium]

Last words

Salaried professionals need to be aware of their HRA policy and its exemptions. With WFH being implemented all over the country and many relocating to their home towns, HRA has suddenly begun to attract taxes. Do you receive more money due to HRA or does your tax liability increase? Calculate and see where you stand and take appropriate measures to cushion the loss. Renegotiate your rent with your landlord or rent out your garage, or tie up with Airbnb to compensate for your tax increase. Welcome to the new normal! How work from home can increase your tax liability. Read this to know more.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas. 


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