Know more about your House Rent Allowance (HRA)
Allowances are a fixed sum paid by an employer to employee. Most of the time, these allowances are taxable unless there are any exemptions made by law. One such allowance is the House Rent Allowance and regulated by Section-10 (13A) of Income Tax Act.
House Rent Allowance:
As a part of the salary, employees usually get a house rent allowance from their employers. The salaried employees who pay rent for their house can claim HRA to lessen taxes. There will be a partial or full exemption from taxes. This does not apply to self-employed or salaried employees who live in their own houses. If the rent paid is more than 1 lakh then details of the landlord also should be produced.
HRA basically depends upon salary (if there are any dearness allowances, commissions should be added to salary).
HRA granted will the minimum of the three mentioned:
- An Amount received as original HRA by the employer.
- Rent paid less 10% of actual salary.
- 50% of actual salary (in a metro city) and 40% in a non-metro city.
Calculation of House Rent Allowance:
To clear understanding, let’s discuss an example.
Sumit stays in Delhi and his monthly rent is 10000. His salary details are given below:
|HRA provided by the employer||15000|
Now, let’s calculate HRA exemptions from Income Tax:
- Actual Salary: 40000 (there are no add-ons like dearness allowance or any commissions)
- 10% of Annual Basic Salary: 48000
- Annual Rent Paid: 120000
Now, Actual annual rent paid (-) 10% of annual basic salary
120000 – 48000 = 72000
50% of actual salary (metro) = 240000
The amount received by as HRA – 15000 X 12 = 180000
In this case, HRA amount will be exempted from the Income Tax is 72000 as this is the lowest of all the three.
What if there is no HRA included in your salary?
If there is no HRA, you can claim tax exemption under SECTION 80GG
- Self Employed or Salaried
- Not received HRA during the year you claim 80GG
- No one in your family owning any residential accommodation at the current place you reside
How to claim: (The lowest of these will be considered)
- 2000 per month
- A quarter of total income
- Basic rent less 10% of income.
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