House Rent Allowance – Income Tax Provisions

House Rent Allowance (HRA) allowance is received by the salaried class employees. HRA allowance is allowed as per the section 10(13A) of Income tax act in accordance with the Rule 2A of the Income Tax Rules.

HRA exemption is allowance only when you are in receipt of HRA allowance from your employer and you are staying in rented house; HRA exemption is allowed only to the period staying in rented premises;

HRA CALCULATIONS:

As per Section 10 (13A) and rule 2A exemption in respect of house rent allowance is based upon the following –

1) An amount equal to 50 per cent of the salary, where the residential house is situated at Bombay, Kolkata, Delhi or Chennai, and an amount equal to 40 per cent of the salary where the residential house is situated at any other place.

2) House rent allowance received by the employee in respect of the period during which rental accommodations is occupied by the employee during the previous year.

3) The rent paid in excess of 10 per cent of the salary.
Exemption is allowable on least of the above 3 calculations;

“Salary” for this purpose means – basic salary and includes dearness allowance if the terms of employment so provide. It also includes commission based on fixed percentage of turnover achieved by an employee as per the terms of contract of employment. But it does not include any other allowance or perquisite, and salary is calculated for this purpose on “due” basis

How to Claim HRA Exemption:

1. You need to submit proof of rent paid through rent receipts / rental agreement, duly signed and stamped, along with other details such as the rented residence address, name of the owner, period of rent etc. Pan number of premises owner is mandatory in case of rent paid exceeds INR 15,000 p.m.

2. You can avail HRA exemption and housing loan exemption simultaneously. You can claim HRA exemption still provided you fulfil the conditions (discussed above) of HRA. i.e., you should have been staying in rented premises and paying rent for it;

Sample Example:

For example A is earning basic salary of Rs. 20000 per month and HRA allowance of Rs. 8000 per month and he is paying rent of Rs.5000 per month in Delhi / Hyderabad.

1. A is staying in Delhi

HRA calculations: Least of:

a. Actual HRA received – Rs. 8000
b. 50% of Basic Salary – Rs. 10000
c. Rent paid in excess of 10% of the salary – Rs. 3000
(Rent paid 5000 – (20000*10% of basic salary)) = 3000

So, 3000 is the least and will be exemption allowable for HRA deduction

2. A is staying in Hyderabad (other than Metro)

HRA calculations: Least of:a. Actual HRA received – Rs. 8000
b. 40% of Basic Salary – Rs. 8000
c. Rent paid in excess of 10% of the salary – Rs. 3000
(Rent paid 5000 – (20000*10% of basic salary)) = 3000
So, 3000 is the least and will be exemption allowable for HRA deduction