House Rent Allowance (HRA) vs. Section 80G Donations: Tax Benefits, Eligibility & How to Maximize Savings
The Indian tax system provides multiple deductions and exemptions that allow taxpayers to legally reduce their taxable income, thereby increasing their savings. Among the most commonly used tax benefits are House Rent Allowance (HRA) exemption and Section 80G deductions. These two provisions serve distinct purposes but significantly contribute to tax optimization when used correctly.
House Rent Allowance (HRA) exemption benefits salaried individuals who pay rent by allowing them to deduct a portion of their HRA from taxable income.
Section 80G donations, on the other hand, enable individuals and businesses to claim tax deductions on charitable contributions, encouraging philanthropy while reducing tax liability.
This article provides an in-depth comparison of HRA and Section 80G, explaining who is eligible, how deductions are calculated, common mistakes, and real-life tax-saving scenarios to help taxpayers make informed financial decisions.
Table of Content
Meaning of House Rent Allowance (HRA)
What is House Rent Allowance (HRA) & Who Can Claim It?
House Rent Allowance (HRA) is a salary component provided by employers to their employees to cover rental expenses. It is available only to salaried individuals who receive HRA as part of their salary structure. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be claimed as a tax-free exemption, reducing the overall taxable salary.
Who Can Claim HRA Exemption?
Only salaried employees receiving HRA as part of their salary are eligible.
The individual must be paying rent for a residential property and not owning the house.
Self-employed individuals and those who do not receive HRA in their salary cannot claim this exemption (but may use Section 80GG for rent benefits).
The taxpayer must maintain proof of rent payment, such as rent receipts and a rental agreement.
Example:
Ankit, a salaried employee, receives ₹25,000 per month as HRA and pays ₹20,000 per month in rent. He can claim a portion of his HRA as a tax-free exemption, reducing his taxable income.
How to Calculate HRA Exemption?
The HRA exemption is calculated using three parameters, and the lowest of the three values is considered exempt from tax:
Actual HRA received from the employer.
Rent paid minus 10% of the basic salary.
50% of the basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metro cities.
Example Calculation
Let’s assume Rahul, a salaried employee, has the following salary structure:
Basic Salary: ₹6,00,000 per annum
HRA Received: ₹2,40,000 per annum
Rent Paid: ₹1,80,000 per annum
City of Residence:Â Mumbai (Metro city)
Parameter | Calculation | Amount (₹) |
Actual HRA Received | - | ₹2,40,000 |
Rent Paid - 10% of Basic Salary | ₹1,80,000 - ₹60,000 = ₹1,20,000 | ₹1,20,000 |
50% of Basic Salary (Metro City) | 50% of ₹6,00,000 | ₹3,00,000 |
HRA Exemption (Lowest Value) | - | ₹1,20,000 |
So, Rahul can claim ₹1,20,000 as HRA exemption, while the remaining ₹1,20,000 will be taxable.
Essential Eligibility Rules for HRA Tax Exemption
HRA exemption applies only to residential rent – Rent paid for commercial properties is not eligible.
Rent receipts and rental agreements are mandatory for claims exceeding ₹1,00,000 per year.
HRA cannot be claimed if rent is paid to a spouse, but it is allowed if paid to parents, provided legal proof exists.
Self-employed individuals cannot claim HRA, but they can avail benefits under Section 80GG.
Section 80G Donations – Maximizing Tax Benefits Through Charity
What is Section 80G? A Complete Overview
Section 80G of the Income Tax Act, 1961, allows tax deductions on donations made to eligible charitable organizations and government relief funds. The deduction percentage depends on the type of institution receiving the donation.
Who Can Claim Section 80G Deductions?
Salaried employees
Self-employed professionals
Business entities (companies and firms)
Unlike HRA, which only applies to salaried individuals, Section 80G is available to all taxpayers, making it an excellent tax-saving tool.
Types of Donations That Qualify for Tax Benefits Under 80G
Donations under Section 80G are classified into four categories based on deduction eligibility:
1. Donations Eligible for 100% Deduction Without Any Limit
Prime Minister’s National Relief Fund
National Defense Fund
Chief Minister’s Relief Fund
Swachh Bharat Kosh
2. Donations Eligible for 50% Deduction Without Any Limit
Jawaharlal Nehru Memorial Fund
Prime Minister’s Drought Relief Fund
Indira Gandhi Memorial Trust
3. Donations Eligible for 100% Deduction (Subject to 10% of Gross Total Income)
Donations to government-approved charitable trusts
Donations for scientific research institutions
4. Donations Eligible for 50% Deduction (Subject to 10% of Gross Total Income)
Donations to registered NGOs and public charitable institutions
Section 80G Deduction Limits: 100% vs 50% Exemption Explained
The tax benefit under Section 80G depends on:
The type of organization receiving the donation (100% or 50% deduction).
Whether the donation falls within or beyond the 10% income limit.
Cash donations above ₹2,000 are not allowed; payment must be made via bank transfer, cheque, or UPI.
Example Calculation
If Priya donates ₹50,000 to a 100% deductible organization, she can claim the full amount. However, if she donates to a 50% deductible NGO, only ₹25,000 can be claimed as a deduction.
Comparing HRA and Section 80G for Tax Savings
Both House Rent Allowance (HRA) and Section 80G donations provide tax benefits, but they serve different purposes and have different eligibility criteria. The table below highlights the key differences between them.
Comparison Table: HRA vs Section 80G
Factor | House Rent Allowance (HRA) | Section 80G Donations |
Purpose | Provides tax exemption for rent paid by salaried individuals. | Allows tax deductions on donations made to eligible charitable institutions. |
Who Can Claim? | Only salaried employees receiving HRA as part of their salary package. | Any taxpayer—salaried, self-employed, or businesses. |
Maximum Deduction | Depends on actual rent paid, salary structure, and HRA received. | 50% or 100% of the donation, with or without limits based on recipient organization. |
Documents Required | Rent receipts, rental agreement, and landlord’s PAN (if rent exceeds ₹1,00,000). | Donation receipt, stamped acknowledgment from the charitable organization, and payment proof (bank transaction, cheque, UPI, etc.). |
Cash Payments Allowed? | No, except for small amounts where rent receipts are available. | No, if donation exceeds ₹2,000. Payments must be through banking channels. |
Applicability in New Tax Regime? | Not available under the new tax regime. | Not available under the new tax regime. |
This table makes it clear that while HRA is a necessity-based exemption, Section 80G donations are voluntary tax-saving opportunities.
Tax Savings Examples of HRA and 80G
Understanding how HRA and Section 80G work in real life can help taxpayers optimize their tax planning. Here are three practical scenarios:
Scenario 1: Salaried Employee with Rent and Donations
Arjun, a software engineer in Mumbai, earns ₹12,00,000 per year and receives ₹3,60,000 as HRA. He pays ₹3,00,000 as annual rent and also donates ₹40,000 to a Prime Minister’s Relief Fund (100% deduction).
Tax Benefits Calculation
Tax Benefit | Calculation | Exemption / Deduction (₹) |
HRA Exemption | Least of three values (as per HRA formula) | ₹1,80,000 |
80G Deduction | 100% deduction for donation of ₹40,000 | ₹40,000 |
Total Tax Savings | HRA + 80G | ₹2,20,000 |
➡ Arjun reduces his taxable income by ₹2,20,000, significantly lowering his tax burden.
Scenario 2: Self-Employed Individual Claiming 80G but Not HRA
Priya, a freelancer, earns ₹10,00,000 per year but does not receive HRA. However, she donates ₹50,000 to an NGO eligible for 50% deduction.
Tax Benefit Calculation
Tax Benefit | Calculation | Deduction (₹) |
80G Deduction | 50% of ₹50,000 | ₹25,000 |
Total Tax Savings | - | ₹25,000 |
âž¡ Since Priya is self-employed and does not receive HRA, she benefits from Section 80G donations but cannot claim rent deductions under HRA.
Scenario 3: Employee Owning a House but Making Donations
Amit, a bank employee, owns a house in Delhi and does not pay rent. However, he donates ₹1,00,000 to a registered NGO eligible for 100% deduction (subject to 10% of gross total income).
Tax Benefit Calculation
Tax Benefit | Calculation | Deduction (₹) |
80G Deduction | 100% deduction on ₹1,00,000 (within 10% limit) | ₹1,00,000 |
Total Tax Savings | - | ₹1,00,000 |
âž¡ Amit does not qualify for HRA, but he effectively lowers his taxable income using Section 80G.
New vs. Old Tax Regime: Should You Claim HRA & 80G?
The Union Budget 2020 introduced a new tax regime, offering lower tax rates but removing deductions like HRA and 80G. Taxpayers can now choose between the old regime (with deductions) and the new regime (without deductions but lower rates).
Comparison of Tax Savings in Both Regimes
Taxpayer Type | Old Regime (with HRA & 80G) | New Regime (without HRA & 80G) |
Salaried with HRA & Donations | Lower taxable income due to exemptions | Higher taxable income but lower tax rates |
Self-Employed Individual | Can claim 80G deduction | No deduction for donations |
Employee Owning House | Can claim 80G | No deduction for donations |
Example: Old vs. New Regime Tax Calculation
Consider Ankit, a salaried employee earning ₹10,00,000 per year, receiving ₹3,00,000 as HRA, and donating ₹50,000 under 80G.
Tax Regime | Taxable Income After Deductions | Final Tax Payable |
Old Regime | ₹10,00,000 - ₹1,50,000 (HRA) - ₹25,000 (80G) = ₹8,25,000 | ₹75,000 (approx) |
New Regime | ₹10,00,000 (No Deductions) | ₹78,000 (approx) |
➡ Ankit saves ₹3,000 under the old regime, showing that taxpayers with HRA and 80G deductions benefit more from the old tax regime.
Common Mistakes While Claiming HRA and 80G Deductions
HRA Mistakes to Avoid:
Not maintaining rent receipts and rental agreements.
Claiming HRA without actually paying rent.
Paying rent to spouse and claiming exemption (not allowed).
Not submitting landlord’s PAN for rent above ₹1,00,000 per year.
80G Mistakes to Avoid:
Donating in cash above ₹2,000 (not allowed).
Not checking whether the organization is eligible for 80G deduction.
Misunderstanding the 50% and 100% deduction categories.
Not keeping donation receipts and payment proofs.
Conclusion: Maximizing Tax Benefits with HRA & 80G
Both HRA and Section 80G donations are effective tax-saving tools, but they serve different financial purposes.
HRA is essential for salaried employees paying rent, providing direct tax exemption based on salary and rent paid.
Section 80G encourages charitable contributions, offering deductions based on where and how much one donates.
If a taxpayer benefits significantly from HRA and donations, the old tax regime remains more advantageous. However, for those with fewer deductions, the new tax regime with lower tax rates may be better.
FAQs
1. Can I claim both HRA exemption and Section 80G deductions in the same financial year?
Yes, both HRA exemption and 80G deductions can be claimed simultaneously, provided you meet the eligibility criteria for each. HRA reduces taxable salary, while 80G lowers taxable income based on donations made.
2. Can self-employed individuals claim HRA exemption?
No, HRA is available only to salaried employees who receive it as part of their salary package. However, self-employed individuals can claim rent deductions under Section 80GG, which has different rules.
3. How can I claim HRA exemption while filing my income tax return (ITR)?
To claim HRA exemption, you need to:
Calculate the exempt portion based on salary and rent paid.
Declare HRA details in Form 16 (provided by the employer).
Submit rent receipts and rental agreements (if applicable).
Disclose HRA exemption under Section 10(13A) in the ITR form.
4. What if I forgot to claim HRA while filing my tax return?
If you missed claiming HRA, you can:
File a revised return before the deadline to include the exemption.
Inform your employer before TDS deduction so they adjust it in Form 16.
If not adjusted in TDS, you can claim a refund by submitting supporting documents during an income tax assessment.
5. Can I claim HRA for rent paid to my parents?
Yes, you can claim HRA exemption for rent paid to parents, provided:
You have a valid rental agreement.
The rent is transferred via bank transactions.
Your parents declare rental income in their ITR.
6. Can I claim 80G for donations made to international charities?
No, Section 80G applies only to donations made to Indian organizations approved by the government. Donations to foreign NGOs or charities do not qualify for tax deductions.
7. Is it mandatory to submit proof for donations while claiming 80G deductions?
Yes, to claim Section 80G deductions, you must:
Obtain a stamped donation receipt from the registered charity.
Ensure the receipt includes the organization’s PAN and 80G approval details.
Make payments through cheque, UPI, or bank transfer (cash donations above ₹2,000 are not allowed).
8. Can I claim 80G deduction if my employer donates to charity on my behalf?
No, only the person making the donation can claim the deduction. If your employer donates on your behalf, they get the deduction benefit unless they show the donation as salary deduction in Form 16.
9. Can I claim HRA if I live in a PG (paying guest) accommodation?
Yes, HRA can be claimed for PG accommodation, but you must provide:
Rent receipts from the PG owner.
Agreement or payment proof showing rent payment.
10. If I switch jobs, can I claim HRA for both employers in the same year?
Yes, if you worked with multiple employers in a year, you can claim HRA separately for each employer. Ensure:
You keep rent receipts for both employment periods.
You declare HRA details from both employers when filing ITR.
11. What happens if my rent is above ₹1,00,000 per year?
If your annual rent exceeds ₹1,00,000, you must:
Submit your landlord’s PAN while filing your tax return.
If your landlord doesn’t have a PAN, they must provide a self-declaration letter.
12. Should I choose the old or new tax regime if I claim HRA and 80G deductions?
If you claim HRA and 80G, the old tax regime is generally more beneficial, as it allows both deductions and exemptions. However, if your salary structure has fewer deductions, the new tax regime with lower rates may be preferable.
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