All about House Rent Allowance
House Rental Allowance also called as HRA is given by the employers to their employees in order to meet their expenses towards the rent paid for their residential accommodation. Normally, many employers give the benefit of House Rent Allowance as the part of the Pay package which can be claimed by the employee as exempt from tax subject to limits as specified by the Income-tax Act.
Who can claim House Rent Allowance Exemption ?
a) House Rent Allowance shall be granted by the employer to the assessee.
b) It should form part of the Salary of the employee
What is the amount that can be claimed as Exemption ?
The Exemption of House Rent Allowance is governed by Section 10(13A) read with Rule 2A of the Income-tax Act.
The HRA is exempt to the extent of Least of the following :-
(i) House Rent Allowance (HRA) received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year. (i.e,) HRA for the proportionate period of house occupied on rent ;
(ii) Excess of rent paid over 10% of Salary (i.e.,) Rent paid minus 10% of Salary ;
(iii) An amount equal to 50% of the Salary (where the residential house is situated in Mumbai,Koktata,Delhi,Chennai) (or) 40% of the salary where the residential house is situated in any other place.
Note :-
Salary for this the purpose of above computation means :-
– Basic Salary and
– Dearness Allowance (if considered as part of salary for retirement benefits) and
– Commission paid/payable to the employee based on a fixed % of turnover achieved by the employee as per terms of contract of employment.
The Calculator below will help you calculate the HRA exemption available :-
Other Points on HRA
1) If you/your spouse own a residential house you cannot claim the exemption of HRA. HRA cannot be claimed irrespective of the fact that the house owned by you is occupied by you or not. Effectively, Income from House property (Self/Let out) and HRA claim cannot co-exist.
2) On the other hand, if the house property owned by you is outside the place of official work, both Income from House property (Loss on account of Interest on Housing Loan) and HRA can be claimed.
3) HRA claim , before being allowed, is required by be verified by the employers in order to grant the HRA exemption in respect of their employees. Hence the employer can demand the Rental receipts and PAN details of the landlord and the employees are obliged to provide the same to the employers for consideration of the exemption claims. On non submission of the same, the exemption can be denied by the employer resulting in tax payment on the same.
4) If the employees are given the option of fixing their salary break up, ensure that minimum of 50% of the basic salary is fixed as House Rent allowance to claim maximum tax benefit.
5) There is no restriction on HRA being claimed against the rent payments made to the parents of the employee. It shall be ensured that the parent’s return of income including the House rent is filed in order to substantiate their claim.
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