What is HRA ?

 

House Rent Allowance (HRA) is the allowance provided by an employer to their employee as a compensation for house rental expenses paid by the employee. It forms part of the salary paid by the employer to their employee.

How is Exemption on HRA calculated ?

The exemption on HRA is calculated as per 2A of Income Tax Rules. As per Rule 2A, the least of the following is exempted from salary under Section 10(13A) and does not form part of the taxable income.

 
  1. Actual HRA received from employer
  2. For those living in metro cities: 50% of (Basic salary + Dearness allowance)
    For those living in non-metro cities: 40% of (Basic salary + Dearness allowance)
  3. Actual rent paid minus 10% of (Basic salary + Dearness allowance)

How is HRA taxed?

If the payment of rental expenses is more than ₹ 1,00,000/- annually, then it is mandatory for the employee to provide the PAN number of the landlord while filing income tax returns.

 

Let us understand the HRA component that would be exempt from income tax through an example

 

Mr X, employed in Mumbai, has taken up an accommodation on rent for which he pays a monthly rent of ₹25,000. He receives a Basic Salary of ₹45,000 monthly along with DA of ₹7,000 monthly which forms a part of the salary. He also receives HRA of ₹ 1 lakh from his employer during the year.

 
Sr No. Particulars Amount
1 Actual HRA received ₹ 1,00,000
2 50% of [(45,000+7,000)*12] ₹ 3,12,000
3 Actual rent ₹ 3,00,000 minus 10% of [(45,000+7,000)*12] ₹ 2,37,600
4 HRA deduction = Least of 1, 2, 3 ₹1,00,000
 

Hence, ₹ 1,00,000 would be exempt from salary u/s 10(13A).

 

Also, if the employee is paying rental expenses but does not receive HRA allowance as a part of salary from the employer or if the person is paying rental expenses but does not have salary income, the benefit of paying rental expense can still be claimed under Section 80GG of the Act.

 

Frequently asked questions

Can I get tax rebate if I am staying in my own house?
No, you cannot claim HRA Exemption in this case.
I have a house in Delhi; but am staying on rent in Bhopal?
Yes, you can claim HRA.
My house is under construction & I have taken another accommodation on rent in the same city?
Yes, you can claim HRA.
Can I get both HRA tax exemption and tax rebate on my home loan?
Yes, you can; where you have rented a house (for yourself) even though you have your own home, for which you are paying a home loan through EMIs. In this case you have to prove that your house (for which you are paying home loan) is far away from your work place.
ICICI Pru LifeTime Classic (UIN: 105L155V01)
Unlike traditional products, Unit Linked insurance products are subject to market risk, which affect the Net Asset Values & the customer shall be responsible for his/her decision. The names of the Company, Product names or fund options do not indicate their quality or future guidance on returns. Funds do not offer guaranteed or assured returns.
Tax laws are subject to amendments made there to from time to time. Please consult your tax advisor for details, before acting on above.
*Tax Benefit of 46,350 is calculated at the highest tax slab rate of 30.90% on premium of 1,50,000 under section 80C of income Tax Act, 1961.
Advt No - W/II/1263/2016-17
COMP/DOC/Mar/2020/163/3328
 

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