Introduction
HRA or House rent allowance is that component of salary which is paid for covering the employee’s rent expenses. The Income Tax Act,1961 exempts this portion of salary known as HRA. This article throws light on how HRA exemption is calculated and issues related to it.
Calculation of House Rent Allowance Exemption
The least of the following is treated as exempt:-
1) 40 % of Salary (50% for those living in Delhi, Mumbai, Kolkata or Chennai)
2) Actual House rent allowance received
3) Actual rent paid less 10% of salary
Note:- Salary means Basic salary and Dearness Allowance.
Example:-Suppose Mr. Y (residing in Pune) receives salary Rs.6,00,000 (Basic + DA) and HRA of Rs. 1,50,000/-. The total Rent paid by him during the year is Rs. 1,80,000/-. Now the HRA component exempt will be the least of the following:-
- a) 40% of Salary i.e. Rs. 2,40,000/-
- b) Rent Paid minus 10% of salary (Rs. 1,80,000 – Rs. 60,000 ) i.e. Rs. 1,20,000/-
- c) Actual HRA recieved i.e. Rs. 1,50,000/-
Hence in the above example Rs. 1,20,000/- is exempt HRA and Rs. 30,000/- HRA shall be taxable.
Points to be noted:-
1) HRA exemption can only be claimed if it is separately paid by the employer. For thos employees who don’t get HRA or self employed taxpayers can claim Rent Deduction under section 80GG.
2) For rents paid in excess of Rs. 1,00,000 annually, PAN of Landlord must be obtained.
3) HRA can be claimed along with deduction of interest on Housing Loan.
4) If assessee is living with parents and any rent is paid to them, then HRA exemption can be claimed.
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