House Rent Allowance (HRA) – Section 10(13A)

HRA is an allowance paid to an employee by his employer for covering their house rent and is taxable in the hand of the employees. U/S 10 (13A), an employee who does not live in his own house and pays rent in excess of 10% of his salary for his residential accommodation, can claim exemption on House Rent Allowance (HRA) received by him.

House Rent Allowance U/S 10 (13A)

House Rent Allowance

This section does not allow self-employed individuals to claim any deduction. An individual is not entitles to receive HRA in the following cases:

  • If he stays in his own house, or
  • If he does not pay any rent or incur any expenditure towards rent, or
  • If the rent paid by him is less than 10% of the salary.

As per this section, HRA allowed to High Court and Supreme Court Judges for their services rendered is exempt from income tax.

The exemption will be calculated for the whole year if the place of employment is the same for the whole year. But, if the place during the employment changes or if the amount of salary, rent or HRA changes, then it will be calculated on monthly basis.

Rent paid to a family member can also be claim provided you are not the owner of the house. A deduction can be claimed as long as you are not the owner of the house. However, you need to submit the rent paid receipts duly signed and stamped along with other details like rented residence address, a name of the owner, period of rent, etc. to the tax authorities. If a deduction of HRA is allowed under this section, then no further deduction is allowed U/S 80GG. HRA exemptions are allowed only on the submission of rent receipts or the rent agreement with the house owner.

For the rent paid more than Rs. 1, 00,000 annually or Rs. 15,000/p.m., PAN card of the landlord is required to be reported to the employer, by the employee. An employee who pays rent for a furnished/unfurnished accommodation can claim the deduction for the rent paid U/S 80GG by furnishing Form 10B provided he is not paid HRA as a part of his salary.

For the purpose of HRA exemption calculation;

  • Salary includes basic salary, dearness allowance forming the part of retirement benefits and commission based on fixed percentage of turnover.
  • Salary will be computed on a due basis in respect of a period during which the accommodation is occupied by the employee in the previous year.
  • Salary will be computed only for the period for which HRA is received.

The HRA deduction is based on salary, actual HRA received, actual rent paid and the place of residence. If the place of residence in Chennai, Mumbai, Kolkata or Delhi, the tax exemption will be 50% of basic salary, whereas, for other places of residence, the tax exemption will be 40% of basic salary.

The exemption in respect of HRA is allowed to the least of the following:

  • Actual HRA received by an employee
  • 50% of salary for Chennai, Mumbai, Kolkata and Delhi/40% of salary for other places
  • Rent paid over 10% of salary i.e. rent paid – 10% of salary

Example:

An individual with a monthly basic salary of Rs. 20000 receives HRA of Rs. 9000 and pays Rs. 10000 for an accommodation in a metro city. The tax rate applicable is 20% of the income. Calculate the income tax payable.

The exemption in respect of HRA (House Rent Allowance) is allowed to the least of the following:

  • Actual HRA received i.e. Rs. 1,08,000
  • 50% of salary i.e. 50% of 2,40,000 (20000 x 12) i.e. Rs. 1,20,000
  • Rent paid over 10% of salary i.e. rent paid – 10% of salary

i.e. Rs. 1, 20,000 – Rs. 24,000 = Rs. 96,000

Therefore, Rs. 96,000 is exempted from income tax and only the difference i.e. Rs. 12,000 will be added to the employee’s income, on which tax of Rs. 2,400 (20%) is payable.

Section 80GG also allows deduction on the rent paid by self-employed people and employees who do not receive any House Rent Allowance from their employer. The deduction is allowed at 25% of the total income or excess of rent actually paid over 10% of the total income. The deduction claimed shall not exceed Rs. 60000 in a year and Rs. 5000/- per month.

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