CA Mohit Bansal
If you are a Salaried Employee then you must know about the HRA. The Term HRA stands for House Rent Allowance. Generally every employee receives a HRA from their employers as part of his salary package, in accordance with terms and conditions of employment.
HRA is given to meet the cost of a rented house taken by the employee for his stay. Income Tax Act allows for deduction in respect of HRA paid to employees so that salaried assesse can get some relief in terms of Tax Savings.
Recently CBDT changes some law related to HRA. According to a CIRCULAR NO. 4/2020, Dated 16 January, 2020 issued by Central Board of Direct Taxes (CBDT), if annual rent paid by an employee exceeds Rs.1 lakh per annum, it is mandatory for the employee to report PAN of the landlord to the employer.
If your landlord doesn’t have a PAN, you have to make a declaration. According to the CBDT circular, in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.
Some employee believes that Tax Saving on HRA shall be available on the Total Rent paid but this is myth. There is condition as per Rule 2A/Section 10(13A)
As Per rule 2A/section 10(13A) an ‘Employee’ who is in receipt of HRA can claim exemption, if he doesn’t live in his own house & pays rent in excess of 10% of salary for his residence.
When HRA Exemption is not Available:
a) When the Assessee stays in his own house.
b) When Assessee doesn’t pay any rent.
c) When s/he doesn’t incur any expenditure towards rent.
d) When rent paid is less than 10% of salary.
There is always a Question which arises every mind that Whether HOME LOAN Tax Benefit & HRA can be claimed simultaneously.
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as 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 your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.
COMPUTATION OF SALARY FOR HRA
Salary=Basic Salary + DA for retirement benefits + Commission forming part of salary.
|Amount received for HRA||XXXX|
|Less: exemption u/s 10(13A) is minimum of the following;|
|1. Actual amount received||XX|
|2. 50% / 40% of salary*||XX|
|3. Rent paid less 10% of salary||XX||XX|
*50% if employee resides in Delhi/Mumbai/Kolkata/Chennai otherwise 40%
As introduced in Budget 2020, if an individual assessee opt for concessional tax rate introduced in budget, then that person should forgone certain exemptions and deductions, House rent allowance is covered under that list. Hence, please keep in mind that if that assessee wants to opt for concessional tax rate then do not take advantage of HRA.
Republished with Amendments
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