Raghav Sharma

Raghav SharmaEmployees generally receive a House Rent Allowance (HRA) from their employers to meet the cost of a rented house taken by the employee for his stay. This allowance is generally a part of the salary package or as stated in the terms and conditions of the employment. HRA is taxable under the head Salary. Under the Income Tax Act, certain exemptions in respect of HRA is allowed under section 10(13A) and is regulated by Rule 2A.

The least of the following is exempt from Income Tax.

  1. An amount equal to 50% of the salary if the rented house is situated in Delhi, Kolkata , Mumbai or Chennai and an amount equal to 40% of Salary if the rented house is situated at any other place.
  2. The amount of House Rent Allowance received by the employer in respect of the period during which the rental accommodation is occupied the employee during the previous year,
  3. The excess amount of rent paid over 10% of the salary received by the employee during the previous year.

Note:  Salary for the purpose of calculation of exemption shall mean the Basic Salary received by the employee and includes dearness allowance if any. As decided in Hughes Softwares System Limited vs ACIT Delhi (2013) (ITAT Delhi), it also includes any commission/incentive received by the employee based on a fixed percentage of turnover achieved by the employee as stated in the terms and conditions of employment contract.

Example: Aman, who resides in Ahmadabad gets a Basic Salary of Rs 10,00,000 and HRA Rs 6,00,000. The rent paid by him is Rs. 7,00,000 . Calculate the amount of taxable House Rent Allowance for the previous year 2013-14.

Answer: The least of the following is exempt from income tax out of the HRA Rs 6,00,000 received by Aman

(a)    Rs 4,00,000 being 40% of the basic salary received by Aman .

(b)   Rs 6,00,000 being the amount of HRA received by Aman .

(c)     Rs 6,00,000 being the excess of rent paid over the basic salary received by Aman. (Rs10,00,000*10%=Rs 1,00,000. Rs  7,00,000-Rs 1,00,000=Rs 6,00,000)

Therefore the exempt amount is Rs 4,00,000.

Important Points

Rent Paid to Spouse/Parent

As decided in Bajrang Prasad Ramdharani vs ACIT (ITAT Ahemdabad) (2013) for HRA exemption if the rent is paid to spouse/parent is valid if all the below conditions are fulfilled:

  • The residential accommodation occupied by the assessee  is not owned by him
  • The assessee has actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him.

Deduction Allowable on Actual Payment of Rent

As decided in CIT vs P.D. Singhania (Allahabad High Court) (2006) deduction is only allowed only if the rent is actually paid by the assesee, therefore HRA exemption is allowed if proper documents in support of rent paid (monthly rent receipts stamped are issued monthly) and rent agreement is duly executed on a properly stamped paper.

S. 10(13A) ‘Salary’ does not include bonus for Calculation of HRA :- Bonus cannot be regarded as falling within the scope of the expression salary as defined in Clause (h) of Rule 2. Clauses (b) and (c) of Rule 4 contain a clear indication that the expression salary takes in only periodical payments made by the employer to the employee during a year by way of remuneration. Commissioner Of Income-Tax vs B. Ghosal (Kerala High Court) – 1980 125 ITR 744 Ker

Note: Normally in a rented property, the electricity/water bills are borne by the tenant and therefore ensure that such charges are paid out of the assessee’s own funds.

 It is also advisable for the landlord (spouse/parent) to declare the rented received as income in the Income Tax return filed by him to avoid litigation.

HRA deduction u/s 10(13A) and Housing Loan Exemption u/s 24(1)

  • If the own property and rented property are in different cities, both exemption can be claimed.
  • If the own property and rented property are in the same city deduction can only be claimed if the assessee can prove that the own property is far off from the work place and therefore he/she stays in the rented property.

Note that the own property should be self occupied and not rented out to claim deduction on house loan.   

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(Compiled by Raghav Sharma EMail- iamraghavsharma@gmail.com)

(Article was first published on 28.12.2013 and republished on 07.08.2015)

Other Articles on HRA-

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  2. House Rent Allowance – A Tax planning tool for Salaried
  3. Download House Rent Allowance (HRA) Calculator
  4. House Rent Allowance – Income Tax provisions
  5. Claiming HRA – What to do if landlord do not have PAN?
  6. Tax Benefits – House Rent Allowance (HRA) Vs. Rent Free Accommodations (RFA)
  7. Deduction u/s. 10(13A) for House Rent allowance

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0 responses to “House Rent Allowance – Case Study and Provisions”

  1. Manu says:

    If someone has stayed for 2/3 months in a hotel/service apartment, Can that amount be claimed as rent paid in HRA?

  2. Sunil says:

    R/s
    i want solution .

    i have rented my home for 10000 including electricity society maintenance…. can i may got rebate of electricity society maintenance as income tax rebate

  3. csn says:

    Sir

    Is rent agreement is mandatory if rent receipts are aleardy given to employer.
    Is any guidelines to give rent agreement.

  4. Bikram jeet singh says:

    i am govt employee
    my basic salary is 16650 + 5800 (GP) i.e: 22450/-
    my city HRA is 10%
    i am not getting HRA because i occupied govt house (quarter) with 5% (of basic) more deduction of my salary as maintenance deduction.
    now my employer forcefully deduct more TDS than my actual by 7.5% of gross salary !!!!!
    Tell me weather my employer is correct or not if yes what rule of IT exists

  5. imran sheikh says:

    Dear sir
    I am salaried person but not declare that i am living in rented home my employer does not allow any deduction of hra can i claim it now at the time of submitting the ITR – See more at: https://taxguru.in/income-tax/house-rent-allowance-case-study-and-provisions.html#sthash.eDg7aHlm.dpuf

  6. Pawan Kumar says:

    Dear sir
    I am salaried person but not declare that i am living in rented home my employer does not allow any deduction of hra can i claim it now at the time of submitting the ITR

  7. CA.Manohar Bhattar says:

    Dear,
    One of my relative who is NRI (USA) but indian have serve in Bangalore an stay in guest house and he submitted receipt of rent to employer (MNC).
    The Employer has not disclose the claim of rent in form 16 . there argument is that guest house is not house but its hotel.
    pl.clarify how he will claim HRA in Return

  8. Neeraj Kumar says:

    I am salaried individual and living in a rented accommodation in Delhi. Apart from house rent, I pay the electricity charges, society maintenance charges and parking society fee. Although the bills for the above mentioned expenses are generated in the name of my landlady, i make the payment for these expenses. Can I claim these expenses under HRA deduction over and above the house rent?

    Regards
    Neeraj

  9. Chandra Madhu says:

    I am Mr. Madhu from Chennai, I need some of elaborate clarification with examples.

    If the assesse in same city, if rented out his property at that time he can claim both the options above mentioned.

    If the assesse show it as house income and he can claim all the exemptions like., (HRA / Housing Loan Interest & Principal).

    I need regarding the above query with full details and necessary examples.

    Is’t required rental agreement, if more than Rs.10,000/- paid per month.

    Thank you

    Madhu

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