House Rent Allowance is Part of breakup of salary in most of the organisations. Employers are following different ratios for HRA and this amount is being given to the employee to meet the cost of rented house taken by them. As per Section 10(13A) and Rule 2A employees can claim exemption against House Rent Allowance Received. But entire HRA cannot be deducted. HRA is Allowance and is subject to income tax.
Employees can claim exemption against rent paid by them. The rented premises must not be owned by the employee. If the employee is residing in his own house, the entire HRA received is taxable. If the rented house is not owned by the employee, exemption of House Rent Allowance is available upto the lowest of the following three options:
1. Actual Rent or HRA received from the Employer
2. Actual House rent paid by the employee minus 10% of basic salary
3. 50% of Basic salary for those who live in metros and 40% of basic salary for
Salary means basic salary including Dearness Allowance, if the terms of employment provides for it, and commission on fixed percentage of turnover achieved by the employee. Deduction of HRA is available only for the period when the employee is occupied the house, not after that.
Salary for calculation of HRA
- Basic Salary + DA + Fixed percentage of commission on turnover
- Amount of salary due is taken for calculation
Calculation of House Rent Allowance (HRA) Exemption (example)
1. Basic Salary Rs. 2,40,000/- (Rs. 20,000 * 12)
2. Dearness Allowance (DA) Rs. 60,000/- (Rs. 5,000 * 12)
3. House Rent Allowance (HRA) Received Rs. 1,20,000/- (Rs. 10,000 *12)
4. Actual Rent paid Rs. 1,20,000/- (Rs. 10,000 * 12)
Calculation of HRA Exemption
Lowest of the Following amount shall be exempted
- Actual HRA Received Rs. 1,20,000/-
- Rent paid in excess of 10% of Salary Rs. 90,000/- (Rs. 120000-30000)
- 50% of Salary in Metros i.e. Rs. 1,50,000/-
or 40% of Salary in other cities i.e Rs. 1,20,000/-
Therefore, Rs. 90,000/- (the lowest amount) shall be exempted against HRA and balance amount of Rs. 30,000 will be taxable.
Rent can be paid to Parents
The Assessee can pay rent to parents. Parents should include the rental income income for tax calculation.
Rent cannot be paid to Spouse
The assessee cannot pay rent to spouse, since both are usually residing in same house.
Proof of HRA claimed should be kept
Rent receipt or other proof for paying rent should be kept to avoid complications.
Tax Benefits from Housing loan and HRA can be availed simultaneously
If you are living in another city, you can claim amount of rent paid and amount housing loan interest simultaneously.
Self employed professionals are not considered for House Rent Allowance Exemption as they are not earning salary. But they can claim house rent expenses incurred under Section 80GG. Exemption for House rent paid under Section 80GG will be lowest amount of the following:
Calculation of HRA Exemption under Section 80GG
1. Rent paid minus 10% of adjusted total income
2. Rs. 5000 per month (from FY 2016-17) earlier Rs. 2000 per month
3. 25% of adjusted total income
Calculation of Adjusted total Income Under Section 80GG
Gross Total Income
Short Term Capital Gain of 10% category
Long Term Capital Gain
Deduction under Section 80C to 80U (except 80GG) and income of Foreign Company.
What is approval u/s 80G(5)? Is it necessary for a charitable Institution? How to apply for it? What is the use of approval u/s 80G(5) for Charitable Trust, Charitable Society, Non Governmental Organizations (NGO), Section 25 Companies and other exempted institutions?