CA Sandeep Kanoi
House rent allowance (HRA) is received by the salaried class. A deduction is permissible under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax Rules. You can claim exemption on your HRA under the Income Tax Act if you stay in a rented house and get a HRA from your employer.
The HRA deduction is based on salary, HRA received, the actual rent paid and place of residence. The place of residence is important. For Mumbai, Kolkata, Delhi or Chennai, the tax exemption on HRA is 50 percent of the basic salary, while for other cities it is 40 percent of the basic salary.
The city of residence is to be considered for calculating HRA deduction.
The least value of these is allowed as tax exemption on HRA:
Actual rent allowance the employer provides as part of salary in the relevant period during which the rental accommodation was occupied Actual rent paid for the house, less 10 per cent of basic pay 50 percent of basic salary if you reside in Mumbai, Calcutta, Delhi or Chennai, or 40 per cent if you reside in other cities.
In order to claim the exemption, the rent must actually be paid for the rented premises which you occupy.
Also, the rented premises must not be owned by you. As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified.
For the purpose of this deduction, salary means basic salary and includes dearness allowance, if the terms of employment provide it, and commission based on a fixed percentage of turnover achieved by the employee.
The deduction is available only for the period during which the rented house is occupied by the employee and not for any period after that. It is to be noted that the tax benefits for home loans and HRA are two separate aspects.
In case you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on a home loan.
You need to submit proof of rent paid through rent receipts, duly signed and stamped, along with other details such as the rented residence address, name of the owner, period of rent etc.
How it applies :-For example, assume one earns a basic salary of Rs 20,000 per month and rents a flat in Mumbai for Rs 5,000 per month. His actual HRA is Rs 8,000. He is eligible for 50 percent of the basic pay for HRA exemption.
- Actual HRA received – Rs 8,000
- 50 percent of basic salary – Rs 10,000
- Excess of rent paid over 10 percent of salary, i.e., Rs 5,000 less Rs 2,000 – Rs 3,000.
As such, Rs 3,000 per month is the least and will be the exemption allowable for HRA deduction.
(Republished with amendments)