Can NRI Employees Claim HRA Exemption in India?
Sushrut Phadke
Founder's Office
Taxation
House Rent Allowance (HRA) is a salary component designed to help salaried individuals fulfill rental housing expenses. A portion of HRA is claimed as tax-exempt under Indian income tax laws if conditions are fulfilled.
NRIs often wonder whether they can claim the HRA exemption in India or not. The tax treatment varies based on residential status and the eligibility for NRI HRA exemption. Keep reading to know what HRA is, how tax residency affects eligibility, and whether an NRI can claim the HRA exemption or not.
What Is HRA Exemption?
HRA is the component of salary paid by an Indian employer to cover rental accommodation costs. Eligible taxpayers can claim the HRA exemption under Section 10(13A) of the Income Tax Act.
To determine the HRA exemption, the smallest of the following three is considered:
HRA Received from Employer: This is the total of the House Rent Allowance provided in your salary by the employer.
Percentage of Salary Based on City Type: If you are an employee in metropolitan cities (Delhi, Mumbai, Kolkata, Chennai), 50% of your salary (Basic + Dearness Allowance (DA)) will be considered. If you live in any non-metro cities, then 40% of your salary (Basic + DA) will be considered.
Excess of Rent Paid Over 10% of Salary: The amount by which the rent you pay exceeds 10% of your salary (Basic + DA).
The remaining HRA amount is taxable for eligible taxpayers. HRA exemption is only available under the old tax regime. Taxpayers who choose the new tax regime can not claim the exemption.
How Tax Residency Affects HRA Eligibility
Tax liability depends on the residential status, not citizenship or nationality. The different residential categories available under income tax are
Resident
Resident but Not Ordinarily Resident (RNOR)
Non-Resident (NRI)
Residential status is determined on the basis of the number of days stayed in India during the financial and preceding years. Eligibility for HRA exemption for NRI employees depends on how they are treated for tax purposes in India. When NRIs are Indian taxpayers and get a salary from an Indian company, their eligibility differs from NRIs who get paid by foreign companies.
Can NRIs Claim HRA Exemption?
Individuals who are considered as Non-Residents for Indian tax purposes cannot generally claim HRA exemption. However, NRIs who qualify as Residents or Resident but Not Ordinarily Resident (RNOR) may be eligible for HRA benefits, subject to the applicable HRA exemption rule and specific conditions.
Receiving HRA from an Indian employer: The allowance should be part of the salary paid by the Indian employer to NRI employees.
Paying rent in India: As an NRI employee, you must pay rent for residential property in India.
Actual occupancy: The rented property must be occupied by the NRI claiming HRA (or their family). Only paying rent without occupancy is not sufficient and the authorities may disallow the exemption.
If these conditions are not met, you will not be eligible to claim the HRA exemption.
How to Claim HRA Exemption
The employees can claim the NRI HRA exemption using the following steps:
Confirm residential status: Confirm whether you are a Resident, Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NRI) for the financial year. Generally, RNORs and residents are eligible to claim the HRA exemption. NRIs, on the other hand, must meet specific conditions.
Check that HRA is part of your salary package: HRA should be a component of your salary. If your salary package does not consist of HRA, then you can not claim exemption under Section 10(13A). Check your salary breakup with your employer before applying for HRA exemption.
Pay rent and keep proof: HRA exemption only applies if you actually pay rent for residential property in India. For this, keep the rent receipts, rental agreements, and bank transfer records with you. If your annual rent exceeds 1 lakh, then you must give your landlord PAN to your employer.
Submit documents to the employer: Submit HRA documents to your employer before tax deduction. Use Form 12BB. It ensures that your HRA exemption is accounted for in TDS calculations and reduces taxable income for the relevant year.
Documentation Required
Proper documentation is important to claim the HRA exemption for NRI employees. Tax authorities ask for proof of rent payments, residential status, and an HRA receipt from you. The essential documents you must have are:
Rent receipts with a revenue stamp
Rental agreement
Proof of rent payment (bank statements)
Form 12BB submitted to the employer
HRA vs Alternative Deductions for NRIs
Not all NRI employees receive HRA. But if you get a salary from an Indian employer and pay rent for accommodation in India, then you may claim the tax deduction under Section 80GG. This provision allows you to reduce taxable income for rent paid, even when you can’t receive HRA from your employer.
You cannot claim both HRA and Section 80GG in the same year. Only one deduction is allowed per financial year. Let us compare the HRA and section 80GG below to find the right deduction option is right for NRI employees.
Feature | HRA | Section 80GG |
Who can claim | Salaried employees receiving HRA | Salaried or self-employed paying rent without HRA |
Maximum benefit | Generally higher, calculated as the least of 3 limits | Up to ₹5,000 per month (₹60,000 per year) or rent paid minus 10% of total income |
Proof required | Rental agreement, Rent receipts, and employer records | Rent receipts, declaration in Form 10BA |
Applicability for NRIs | Only if the Resident/RNOR and receiving HRA | NRIs who pay rent in India without HRA can claim by meeting the conditions. |
Common Mistakes & Cautions
If an NRI worker wants to make an HRA exemption claim, they should avoid these typical mistakes:
Incomplete paperwork: To keep your HRA exemptions from being denied, always send in full and correct paperwork like rental agreements, rent records, and bank statements.
New tax regime: NRI workers can't get an HRA exemption under the new tax regime. Choose the old tax regime at the start of the financial year if you want to claim the exemption.
Living outside of India or paying rent outside of India: You can get an HRA exemption if you rent a home in India. You can't get the exemption if you live outside of India and pay rent for a home outside of India.
Conclusion
NRI employees can claim the HRA exemption in India but limited to certain conditions. You can only claim if you pay rent for a property in India and receive the HRA from an Indian employer. So, you must understand your tax residency status, choose the correct tax regime, and maintain proper documentation to claim the HRA benefits successfully.
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FAQs
How does HRA in income tax exemption work?
Under Section 10(13A), the HRA exemption allows salaried individuals to reduce their taxable income based on the rent paid, salary structure, and the city of residence.
Can NRIs get HRA exemption if they live outside of India?
No, NRIs can't get HRA exemption if they live outside of India, get paid by a foreign company, and rent a home outside of India.
What paperwork do I need to get out of paying the HRA?
A rental agreement, rent records, proof of payments, Form 12BB, and the landlord's PAN are the most important things you need to claim an HRA exemption.
What if my company doesn't give me HRA?
If you do not receive HRA from your job but pay rent in India, you may be able to get HRA exemption by using other deduction options under Section 80GG, as long as you meet the requirements.
