HRA, Rent and Home Loan - Tax Exemptions - Tax Saving

What is HRA Exemption?

The part of rent paid by you, which can be directly deducted from your taxable income.

How much HRA exemption can I get?

Lets say
A = Actual HRA earned in salary
B = Rent Paid - 10% of basic salary
C = 40% of basic salary (50% in case of metro cities)

Then HRA you can claim is minimum of A , B and C 

Documents required to claim HRA exemption

• If Rent is less than Rs.8000, then Rent receipts only
• If Rent is greater than or equal to Rs.8000 but less than Rs.16667, then Rent receipts + Rental Agreement + Owner's PAN (or a declaration that owner does not have a PAN) 
• If Rent is Greater than or Equal to Rs.16667, then  Rent receipts + Rental Agreement + Owner's PAN.

How can my House Loan help me save tax?

The amount of house loan paid by you in form of EMIs has 2 components: 

1. Principal
2. Interest

Principal can be shown as a part of your 1 Lac investment under sec 80C

Interest (upto a limit of Rs.2.5 lac per annum) can be claimed as loss on property, and is directly deducted from your taxable income.

However, the calculation is a bit different in case of let out. (ie. When you let out your own property and stay in a rented house)

Let Out

This one can be the most beneficial deal, as far as saving taxes is concerned.
You need to consider 3 things: 

1. Income from rent you earn
2. HRA exemption of the rent you pay
3. EMI

1) Income from the rent you earn from your let out property =  70% of total rent earned – property taxes.
(only 70% needs to be considered because remaining 30% can be exempted as maintenance cost)
This amount must be added to your taxable income under the header of income from other sources

2)HRA exemption
Same as explained above

3)House Loan EMI
Again, The amount of house loan paid by you in form of EMIs has 2 components: principal and interest
Entire Interest Amount  can be claimed as loss on property, and is directly deducted from your taxable income. Yes, in this case, Rs. 2.5 lac limit is not applicable.
Principal can be shown as a part of your 1 Lac investment under sec 80C