House Rent Allowance (HRA) taxability, working / calculation
Employees generally receive a house rent allowance (HRA) from their employers. This is a part of thesalary package, in accordance with the terms and conditions of employment. HRA is given to meet thecost of a rented house taken by the employee for his stay. The Income Tax Act allows for deduction inrespect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is notdeductible. HRA is an allowance and is subject to income tax.An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented houseand is in receipt of HRA from his employer. In order to claim the deduction, an employee mustactually pay rent for the house which he occupies. The rented premises must not be owned by him. Incase one stays in an own house, nothing is deductible and the entire amount of HRA received issubject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will beavailable up to the minimum of the following three options:1.
Actual house rent allowance received from your employer 2.
Actual house rent paid by you minus 10% of your basic salary3.
50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metroThis minimum of above is allowed as income tax exemption on house rent allowance.Salary here means basic salary which includes dearness allowance if the terms of employment providefor it, and commission based on a fixed percentage of turnover achieved by the employee. Thededuction will be available only for the period during which the rented house is occupied by theemployee and not for any period after that.
Meaning of Salary for calculation the exemption of HRA
Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
Salary is to be taken on due basis in respect of the period during which the periodaccommodation is occupied by the employee in the previous year.
Examples for calculation of exemption/deduction of HRAX has received following amount during the previous year.
Dearness Allowance (D.A)
House Rent Allowance (H.R.A.)
Actual Rent Paid
CalculationThe minimum of the following amount shall be exempt
Actual HRA received (2000*12)
Rent Paid in excess of 10% of salary ( 24000-7200)
40% of Salary
and the balance Rs. 7200 shall be included in gross salary.