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House Rent Allowance (HRA):Taxation & Exemption

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House Rent Allowance (HRA):Taxation & Exemption

House rent allowance is a type of allowance paid by employer to employee to compensate rent paid by the employee in respect of residential accommodation occupied by the employee.

HRA paid to employee is not fully taxable under the Income Tax Act.  Its certain portion is exempt u/s 10(13A) of the Income Tax Act. The amount of HRA which is not taxable (exempt component) shall be lower of following:

  • Actual amount of HRA
  • Rent exceeding 10% of SALAY
  • 50%/40% of SALARY if house is situated at metro cities/Other Place

HRA exemption shall be claimed for the period during which the said accommodation is occupied by the assessee during the previous year.

Meaning of SALARY:   Basic Salary + dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites + Commission (if paid on fixed percentage of turnover)

Metro Cities: Bombay, Calcutta, Delhi or Madras

No exemption for self owned accommodation: HRA exemption is not available if the residential accommodation occupied by the employee is owned by him.

 

Example: Mr. X is working in JG & Co. He is paid monthly salary of Rs. 30,000. He pays Rs. 12,000 monthly rent. Break-up of salary is as under:  Basic Salary   8,000, HRA  10,000 and Transport Allowance 5,000, Other Allowance  7,000. Calculate value of HRA which is exempt if he lives in (i) Delhi    (ii)  Faridabad.

If he lives in Delhi

  • Actual amount of HRA is Rs. 10,000
  • Rent exceeding 10% of SALAY 12,000-10% of 8,000  = 12,000-800  = Rs.11,200.
  • 50% of SALARY is Rs. 4,000.

Lower of above three conditions is Rs.4,000.

Therefore Value of exempt HRA is Rs. 4,000 and taxable HRA is Rs. (12,000-4,000) 8,000.

If he lives in Faridabad

  • Actual amount of HRA is Rs. 10,000
  • Rent exceeding 10% of SALARY 12,000-10% of 8,000  = 12,000-800  = Rs.11,200.
  • 40% of SALARY is Rs. 3,200.

Lower of above three conditions is Rs.3,200.

Therefore Value of exempt HRA is Rs. 3,200 and taxable HRA is Rs. (12,000-3,200) 8,800.

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