House Rent Allowance is normally called HRA by the assesee. The HRA means House Rent Allowance received by you from employer in respect of residential accommodation occupied by you. So in simple words the employer will pay you the rent which you are paying for your rented accommodation.
Most of the assesees confuse over the liability of tax payable for House Rent Allwance (HRA). As per the provision of Rule 2A, the whole HRA will not be taxable but the par of it. Section 10 (13A) deals with the provision of House Rent Allowance.
Conditions to Claim HRA Exemption
- You should have stay in rented accommodation.
- You should pay rent to the owner regularly.
- The accommodation or premises are not owned by you or any of your family member.
- You should produce all the rent receipts in proof of actual payment.
- If you are getting HRA up to Rs.3000 p.m. then you are not required to produce the rent receipt.
Calculation of HRA
You are entitle to get exemption of the least of the following:
1) Actual house rent allowance received, or
2) Rent paid in excess of 1/10 of salary, or
3) An amount equal to –
- Where such accommodation is situated at Bombay, Calcutta, Delhi or Madras; one-half of the amount of salary due to you in respect of the relevant period, and
- Where such accommodation is situated at any other place; 2/5 of the amount of salary due to you in respect of relevant period.
4) The calculation of HRA will be computed on annual basis when all the factors were same like accommodation location is same for whole year, rent paid is same for whole year. Otherwise the calculation should be done on monthly basis.
Important for Calculation of HRA: The salary includes dearness allowance if the terms of employment so provide (e.g. where it is taken into account while calculating P.F. & allowance etc.) but excludes all other allowances and perquisites.
House rent allowance received by the assessee will not be exempt from tax, in case where
(a) the residential accommodation occupied by the assessee is owned by him or
(b) the assesse has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him.
The amount of HRA exempt depends upon the salary of the employee, amount of HRA, rent paid and the place where the accommodation is hired. If all the factors are same throughout the year, the amount of exemption may be calculator on annual basis. Otherwise if there is a change in any of the factors, the amount exempt should be computed on monthly basis.
Examples to Clear the Concept of HRA Calculation
Mr. Tarun has rent paid accommodation in Delhi. The following numbers will help Tarun to calculate the exemption of HRA.
Pariculars Amount (P.A.)
Basic Salary 500000
Rent Paid 80000
Now find the least of the following for exemption
Actual HRA 90000
Rent Paid - 10 % of Salary i.e [Rs.80,000 - Rs.50,000] 30000
50% of Salry (As in Delhi) 250000
So, HRA exemption is Rs.30,000 and taxable amount is Rs. 90,000 - Rs.30,000 = Rs.60,000