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HRA: House Rent Allowance

C
CA Prashanth Reddy
01/07/2017 0 0

What is HRA?

HRA or House Rent Allowance is a component of salary provided by employer to his employee. If you receive HRA as part of your salary and you live in a rented accommodation, then you can claim full or partial HRA exemption under section 10. 

However, HRA is fully taxable if you don’t live in a rented accommodation.

How to Calculate HRA?

Your HRA calculation depends on four factors. These factors are as follows: 

1) Salary
2) HRA component of salary
3) Rent paid
4) Location of your rented residence

HRA Exemption Rules:

Tax exemption on HRA is least of the following:

1) Actual HRA received
2) Actual rent paid reduced by 10% of salary
3) 50% of basic salary if the taxpayer is living in a metro city
4) 40% of basic salary if the taxpayer is living in a non-metro city

 Since the least of the above is exempt from tax, you can ask your employer to restructure your salary to get maximum tax benefit.

If all the factors mentioned above remain constant then tax exemption on HRA can be calculated annually but if any factor changes within the relevant Financial Year then calculation needs to be done on a monthly basis.

Let’s understand calculation of HRA with the help of an example:

HRA Exemption Calculation with Example:

Example: Suppose Mr. Pratik lives in New Delhi and earns a basic salary of Rs. 30,000 per month. The HRA component of his salary is Rs. 15,000 but the actual rent paid by him is Rs. 10,000. How much exemption can he get?

Solution: To solve this problem, first let us look at the factors affecting HRA calculation. 

    a) Actual HRA received is (Rs. 15,000 x 12) = Rs. 1,80,000 
    b) Actual rent paid (Rs. 10,000 x 12) – 10% of salary [(Rs. 30,000 x 12) x 10%] = Rs. 84,000 
    c) 50% of basic salary [(Rs. 30,000 x 12) x 50%] = Rs. 1,80,000 

Rs. 84,000 is the least among the above obtained figures so Mr. Pratik can get Rs. 84,000 exempt.

Frequently Asked Questions about HRA:

1. Can I get tax benefits on HRA along with tax benefits on home loan?

Yes you can claim both tax exemptions together. If you are a home owner paying back home loan but living in a rented accommodation then you can get tax benefits for both cases.

To claim HRA, whom do I pay rent to?.HRA benefits can be claimed if you pay rent to your landlord, i.e. owner of the property in which you live. However, the owner can be anyone including your parents. But remember that the at least 70% of the rent you pay to your parents get added to their taxable income also.

2. Is my landlord’s PAN mandatory to claim HRA?

If you pay rent in excess of Rs. 1 lakh p.a. then it is necessary to mention PAN details of your landlord in your tax return to claim tax exemption on HRA.

My employer does not give me HRA. Can I still claim relevant tax deduction?

Section 80GG of Income Tax Act allows tax deduction to the individual even if he does not get HRA from his employer

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