House Rent Allowance (HRA) is a component of an employee’s salary that helps cover rental expenses and provides tax benefits. This article explores the eligibility criteria for claiming HRA and how to calculate the deduction. Additionally, it discusses practical aspects and the options available if an employee does not receive HRA.
Q.1 What is HRA?
Ans. HRA or house rent allowance is an integral part of the salary slip of an employee. It refers to the amount paid by the employer to his employee to meet the cost of rent.
HRA not only helps the employee to cover his rental expenses but also helps save the Income Tax to be paid by the employee subject to certain conditions.
Q.2 Who is eligible to claim HRA?
Ans. The HRA exemption is allowed Under Section 10(13A) of the Income Tax Act, 1961 subject to the conditions mentioned below:
1. The assessee must be a salaried individual.
2. The assessee must have received HRA from the employer.
3. The assessee must have lived in a rented house.
4. The assessee must have actually paid the rent to the landlord.
Q.3 How to Calculate HRA?
Ans. The deduction for House Rent Allowance u/s 10(13A) is claimed lower of following:
1. Actual Rent paid minus 10% of Basic Salary.
2. Actual HRA offered by the employer.
3. 50% of salary when residential address is in Delhi, Mumbai, Chennai, and Kolkata or 40% of salary in other cases.
Note: For HRA salary includes Basic Salary, Bonus, Dearness Allowance, and any Commission.
Q.4 Practical aspects of HRA.
Ans.
1. In case the Rent paid by the Employee exceeds Rs. 1Lakh the employee needs to furnish the pan number of the landlord. However, if the Landlord don’t have a Pan card in that case the employee can furnish a written declaration.
2. HRA cannot be claimed if you are living in self-occupied property, the property has to be rented by the employee.
3. The HRA must be claimed only for the self i.e., the HRA paid by the employee for the spouse cannot be claimed.
Q.5 What if you don’t receive HRA?
Ans. In case the employee doesn’t receive the HRA but lives on the rent in that case the employee can claim the deduction of the rent paid under section 80GG of the Income Tax Act 1961, subject to the certain conditions.
Maximus of deduction that can be claimed under section 80GG is lower of the following:
1. 5000/- P.M. or Rs. 60,000 per year.
2. 25% of Gross Total Income (Except LTCG, STCG, 115A or 115D and all the other deductions).
3. Actual Rent paid minus 10% of Income.
Conclusion: Understanding HRA and its tax implications is crucial for salaried individuals. HRA provides financial support for rental expenses and helps save on Income Tax. Eligible individuals can claim HRA exemption under Section 10(13A), while those not receiving HRA can avail deductions under Section 80GG. It is essential to comply with the conditions laid down by the Income Tax Act to ensure accurate and lawful tax benefits related to HRA.
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