CA  Chandra Kishore Bajpai

CA Chandra Kishore BajpaiHouse Rent Allowance (HRA) is second component which is found in each pay slip after basic salary.  This is the major contributor in tax relief for the employee who reside in rented house during his/her employment.

Generally employee submits Rent receipt and rent deed to his employer to claim exemption of tax on account of HRA however recently CBDT vide circular :08/2013 dated 10 Oct 2013 has made mandatory that If annual rent paid by the employee to his/her land lord exceeds Rs 1,00,000 per annum, he/she will have to report PAN of the landlord to the employer. 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.

Apart from this new requirement, there are so many doubts & questions arise while calculating & claiming exemption of tax from HRA which I am trying to summaries here in “question-answer form” in my following lines:-

Q. What is objective to claim exemption for House Rent Allowance? under Sec.10 (13A).

A. To meet expenditure actually incurred by an employee on account of payment of rent in respect of residential accommodation.

Q. Which section HRA exemption has been granted?

A.  Section 10(13A) of the Income Tax Act,1961 provides for the exemption from HRA.

Q. What are condition to claim exemption?

A.  An employee must fulfill following conditions to avail exemption:-

  1. He/she must stay in rented House during the period for which claiming exemption i.e. he/she does not stay in own house (property in his/her name)
  2. He/she must have actually incurred expenditure for payment of rent.

Q. How shall exemption from HRA be calculated?

A.  Calculation of HRA exemption is regulated by the Rule 2A of the Income tax Rules, 1962 which says that minimum amount of the following three shall be exempt :-

(a)   Actual amount of HRA received,

(b)   Rent actually paid minus 10% of salary

(c)    50% of salary if stayed in Delhi/Mumbai/Chennai/Kolkata or 40% of salary if stayed in other place.

Q.  If HRA received during the Financial year is more than the least of amount calculated, what would be consequence?

A.  Excess amount shall be taxable and be treated as part of gross salary.

Q. What does mean by salary for the calculation of HRA exemption?

A.  It includes three components (i) Basic Salary, (ii)DA if considered for Retirement purposes and (iii)Commission forming part of Salary as a Fixed Percentage of Turnover achieved by the employee.

Q. What will happen if employee stayed in two places during the financial year?

A.  If he stays in two different places in same city, nothing will change however if he stay in different cities, it may affect if staying in Delhi/Mumbai/Chennai/Kolkat for one period and in other place for other period.

Q. What will happen if employee pays rent less than 10% of his salary?

A.  Whole of the HRA amount received will be taxable.

Q.  If place of stay is different from place of employment, how HRA exemption shall be calculated?

A.  The exemption must be calculated on the basis of the place where residential accommodation is situated because HRA exemption is for expenditure actually incurred for Rent even in relation the employment.

Q.  HRA exemption should be calculated on monthly basis or for whole of the year?

A.  Exemption is for the period in which rental expenditure actually incurred and rental accommodation is occupied by the employee during the financial year therefore if there is no change in place or rent paid during the year, it can be calculated for whole year but if there is a change in any of the two during the year then it must be calculated on monthly basis and for the month in which rental accommodation occupied by the employee.

Further calculation of HRA exemption depends upon Salary or HRA actually received also thus if there is any change in salary or HRA amount in the period it must be calculated separately for that period.

Q. If employee stay at parent house, can he claim exemption for HRA?

A.  Yes, if he paid the rent actually to his parent.

Q.  What will happen if employee is paying rent to his/her spouse?

A.  Relationship of husband-wife is not supposed to be commercial therefore it is better that no exemption should be claimed in such transaction.

Q.  Do employee need to submit any proof for payment of rent to claim HRA exemption?

A.  Payment of actual rent is pre requisite for claiming HRA exemption and Assessing Authority may ask for proof of payment at the time of regular assessment but employee drawing HRA upto Rs.3000/- per month shall be exempted from production of rent receipt while submitting his claim to employer.

Q.  Whether exemption of HRA is part deduction allowed u/s 80C?

A.  No, HRA exemption is different from deduction u/s 80C and it does not be included in the amount eligible for deduction u/s 80C.

Q.  Can an employee avail tax benefit of HRA and Home loan both together?

A.  Yes, Tax treatment of both is under different sections and both can be availed simultaneously.

Resource:-

(i) Section 10(13A) read with Rule 2A of the Income Tax Act,1961

(ii) Circular : No. 90 [F. No. 275/79/72-ITJ], dated 26-6-1972 by CBDT

(iii) Letter : F. No. 12/19/64- IT(A-I), dated 2-1-1967 By CBDT

(iv) Circular : No. 9/2003, dated 18-11-2003/[Para 5.2-(9)].

(v) CIRCULAR NO : 08/2013 dated 10th Oct 2013

(Article was First Published on 14.11.2013)

Also Read :-

More Under Income Tax

Posted Under

Category : Income Tax (26745)
Type : Articles (16232) Featured (4128)

54 responses to “House Rent Allowance – A Tax planning tool for Salaried”

  1. MANJUNATH says:

    HRA exemption for job break period

    If a person has earned 8 months salary during a financial year due to job break, is that person entitled for HRA exemption for the entire 12 months or only for 8 months.

    Thanks

  2. Mr nagar says:

    my relative has paid rent for the whole year 15-16. during this period he has worked in two organisations where he has received HRA with a break in service for a period of almost 3 months when he was unemployed. Both the employers allowed HRA exemption for the period he worked under them as such he did not get HRA exemption for the period of 3 months when he was unemployed.Now, whether he can claim separately HRA exemption Under IT Act while filing e-return.
    kindly guide if yes How? if not the reasons therefor.

  3. BlrRaj says:

    I am working in bangalore and staying in rented accommodation. However, is it legally possible to pay rent to my parents who are staying in tumkur. The house in tumkur is parents owned property. I will visit them every week and will pay rent for them every month. I am asking this because, in bangalore i am staying in PG and paying rent of about 5K. However, i want to claim my complete rental exemption of 8K which i am eligible based on my HRA received from my employer.

  4. ranjanraj78 says:

    Hi Sir,

    I m planning to shift in the rented house nearby my son’s school
    in Bangalore and I will put my own house on rent, which is quite distant from
    my son’s school.

    It will also be easier to me to commute to office from the new
    place.

    I have closed the home loan of my flat. Please guide me how it
    will work out considering income tax in mind.
    Also let me know if Bangalore fells under Metro category so that I can claim 50 % of the basin under HRA.
    Please share your guidance and help me!

    Rajni

    • CA CHANDRA KISHORE BAJPAI says:

      @Rajni
      There is no restriction to shift in rental house and let out your owned house, You can claim HRA for actual rent paid but don’t forget to show your rental income under the head “income from House property’.
      You cannot claim 50% of Basic even Bangalore is metro city but not notified for this provision
      CA Chandra Kishore Bajpai

      • ranjanraj78 says:

        Thanks for your detail reply. I have one more query, Can I gift this rental income to my wife and she will show this income in har income. She is not working and have no other

  5. ranjanraj78 says:

    Hi Sir,

    I m planning to shift in the rented house nearby my
    son’s school in Bangalore and I will put my own on rent, which is quite distant
    from my son’s school. I have closed the home loan of my flat. I will be getting
    16000 as rent and will be paying 23000 as rent. I am receiving 30000 as basic
    salary. Please guide me how it will work out considering income tax in mind.

    Regards,

    Rajni

  6. ranjanraj78 says:

    Hi Sir,

    I m planning to shift in the rented house nearby my son’s school in Bangalore
    and I will put my own on rent, which is quite distant from my son’s school. I
    have closed the home loan of my flat. I will be getting 16000 as rent and will
    be paying 23000 as rent. I am receiving 30000 as basic salary. Please guide me
    how it will work out considering income tax in mind.

    Regards,

    Rajni

  7. Vaibhav Maniar says:

    I would like to know that if an employee does not receive HRA as a component of salary can he or she still take HRA deduction. As per my understading one should have HRA component in the Salary break up to claim the exemption in first place for rent paid. Kindly clarify

    • CA Chandra Kishore Bajpai says:

      You can claim deduction under Section 80GG instead of claiming under the head salary income.

      CA Chandra Kishore Bajpai

  8. Namanpreet Singh says:

    Hi!
    My mother is a government servant and I too am going to join the same. so if we take up a government accommodation in my mother’s name, do we both have to get our HRA deducted??

    • C.K.Bajpai says:

      No you should not claim HRA deduction as you will not be paying any rent if going to stay at accommodation provided by Government
      Regards
      CA CK Bajpai

  9. Vinay says:

    I have worked for 3 months this year in mumbak and then I moved to Delhi. I am mot working anywhere as of now. Can I Claim HRA for the period, I was not working anywhere?

  10. Sajal Agarwal says:

    I am feeling very exited to write that this is mah first groovy eve after joining CA in which i enjoyed and motivated to give a push up to mah dream…writing, to stroke to fly in life according to me.

    Thanks thanks thanks a ton to Anjani Sir & Your team
    Thank you CA diary….
    ……

  11. sridharan says:

    I am staying with my wife in our own house. House is in her name she is also filing her returns. In this case Can I claim house rent benefit?

    • C.K.Bajpai says:

      yes you can claim HRA however you should pay Rent regularly through Cheque as precationary measure and she should include such rent in her income statement

  12. Vineet Jain says:

    If consolidated rent paid is above 1 lac (e.g. Rs.70k paid at a different accommodation & 50k paid at different accommodation) in the same city, then does it requires to furnish the PAN details also how the tax exemption be calculated in this case?

  13. Rawal Singh Bhati says:

    @shah

    No you cant claim HRA, there is no provision in INCOME TAX ACT to claim H.R.A for your housing loan E.M.I.

    But for E.M.I you may take benefit u/s 24 and 80C for interest and principal respectively

  14. Mahesh SV says:

    Some of my colleagues have not produced rent receipts and their HRA P.A is within 40000. Is it necessary for me to collect Rent receipts from my colleagues.

    Please advice me.

    Regards
    SVMahesh

  15. Shah says:

    dear sir,

    I own a house in mumbai where i stay and one more i have taken in same city(Thane district) on Home loan, can I claim HRA for 2nd Home for which i am paying EMI of Amt. Rs 36,000/- ? pls confirm.

    SHah.

    • C.K.Bajpai says:

      Just see HRA dedcution is available to employee who stay at rented house.therefore in your case there is no question of claiming HRA for any house owned by you

  16. santosh says:

    Dear Sir,

    my salary is revised in january 2015 retrospectively from april 2014. can i get eligible exemption of allocated HRA revised portion.
    or revised HRA will be fully taxable even in same year?

    please suggest me!!!!!!!

    • Naval Shah says:

      Dear Santosh,

      Hello

      Normally in case of Salary / other perks / allowances, it is on receipt basis!
      So when you receive, you have to assume the HRA becomes taxable!

      Also while filling rerurn, for the year FY-13-14, for income earned during-13-14 i.e. April-13 to Mar-14, one has to pay tax. For the period Jan-14 to MAr-14, you did not get the revised HRA then but only now, so the differential HRA becomes taxable now!

      Other learned Professional Friend may correct my understanding!

  17. Ramana says:

    For availing HRA deduction. Is it required to submit Landlord PAN Number

  18. Tanny says:

    Dear Sir,

    i am working in Pvt institution where we get consolidated salary (its not bifurcated under TA DA HRA etc). i pay rent of rs 15000 per month..and have registered rent deed. We dont get any HRA benefit from employer. In ITR as an individual we can claim maximum of Rs 24000 per year (Rs 2000 pm). but i pay more than 10% percent of my salary as house rent. Is there any other way we can save tax . Any court ruling governing this rule..or any other way..? please guide…

  19. Naval Shah says:

    Dear Sir,

    I am working in Costing Dept. I avail the services of Taxguru through email.

    First of all, big Thanks for the nice services.

    I have a question for HRA – provision.
    As per our Income Tax rules- Eligible deduction for House rent is minimum of the three following:
    -1 – Actual of HRA received, 2- Excess of actual House Rent paid over 10% of Salary,3- 40% of Salary.

    I am staying in a Rented House, away from H0me town and working in a Pvt firm, where my Basic salary is 40000. I pay rent of 5000. Other allowance are in proportion to that! There are no other allowances, which can be included in Salary. Now I am eligible for only 1000 as eligible House rent deduction ( being amount higher than 10% of Salary! If I Claim higher Rent till 8000 (per month), my eligibility of House Rent allowances goes up substantially higher!

    Can our Institute or Govt or such representative body work in the right direction and help tenant like us to get the eligible House Rent allowances, actually paid as available deduction i.e. 5000 per month!

    I hope my message is understandable!

    One more condition of Actual House Rent paid be inserted in a way that eligible House Rent Allowances is available to a salaried employee, equal to the Actual House Rent paid! e.g if actual House Rent paid is less than 20% of Basic Salary than actual House Rent paid be eligible as deductions!

    Best regards,
    919898402018

  20. A Goel says:

    Please suggest if it is possible that I stay in delhi and pay rent for my parents stay in Mumbai. Will I be able to claim HRA rent deduction for Mumbai house of my parents instead of delhi.

  21. JAYMIN says:

    Q. If an employee gets fixed salary (Does not include HRA) and he pays monthly rent to his parents Can he avail any tax benefit on amount paid as rent?

  22. Paaji says:

    Can the rent be paid to a parent when the house is not owned by the parent? This sounds like a obvious question but appreciate a quick response.

  23. CA CKBAJPAI says:

    To Mr.JP
    According to Circular PAN of landlord is required and I understand that it would be sufficient to furnish PAN of one of landlord if definite share of landlords not mentioned in deed.
    Further motive behind circular is to expand network on “actual rent incurred & HRA claimed by the employee” and restricting bogus claim on HRA that’s why also it would be sufficient if PAN of one landlord is furnished.

  24. JP says:

    Hello Mr. Bajpai,

    If wife & husband are joint owners of home and both names appear in rent agreement as owners then is it sufficient to produce PAN of only wife to the employer ?

  25. Arun says:

    Dear Sir,
    Let me know that this means limit has been reduced from 180000 p.a. to 100000 p.a., and if our company hired a accommodation for staff with Rs. 10700/-pm so we have to collect the PAN card from landlord and deduct the T.D.S during payment of rent now outward.
    Kindly clear my doubt..

    • CA CKBAJPAI says:

      This circular is related to TDS to be deducted on salary by employer.
      It doesn’t have nay relation with TDS on rent (u/s-194 I). For deducting TDS on making payment of rent you should be guided by the provision of section 194 I which remain same as it was.

  26. Murali J says:

    Hi Bajpai

    what is the rule if individual having a housing loan, but the house if far away from work place then, can he claim HRA if he resides in a different area??

    Kindly revert.

    Thank you.
    Murali J

    • CA CKBAJPAI says:

      Generally HRA is allowed for the place where employee is rendering service however there is no restriction ‘as such’ imposed in any provisions thus it may be claimed.

  27. CA CKBAJPAI says:

    To Mr.j.khetan:- yes rent receipt and rent deed both should be furnished to your employer.

  28. CA CKBAJPAI says:

    To Mr. Prashant karia
    Exemption may be claimed while filing your ITR as circular is related to TDS to be deducted by employer.
    No circular can override the relief given by the law itself.yes you can claim refund?

  29. CA CKBAJPAI says:

    Dear Mr.Varun
    As you stay with your father and he himself staying in rented house , I would not suggest to pay rent to father.
    One more thing I want to make clear that threshold limit of Rs.100000/- is not for claiming exemption but it is limit where your employer will insist you to furnish PAN of landlord and in case of non furnishing he will deduct more TDS. second this threshold limit would be applicable w.e.f 1st April 2013 as circular has been issued for FY 2013-14 thus no need to bifurcate rent into two periods.

  30. Varun Kumar Gupta says:

    Sir, My HRA component is Rs. 10,000/- per month and I stay with parents in a rented house and rent is borne by my father. If I have to show as if I am paying rent to my father, do we need a separate agreement for that ?.
    And if only Rs. 1,00,000/- for the entire year can be claimed, is it possible for us to claim Rs. 10,000/- per month up to September end and thereafter keeping the above rule in view, since earlier the limit used to be Rs. 14,999/- per month. Please guide.

    Regards,
    Varun.K.Gupta.
    Mob:-+91-90320 43380.

  31. CA CK BAJPAI says:

    Vijender Singh says: R/sir, what is the of definition of salary for the calculation of value of rent free accommodation.
    For valuation of perquisites, salary means pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment but does not include DA if not forming part of retirement benefits, EPF contribution of employer, exempted allowances, ete

  32. CA CK BAJPAI says:

    Thanks to All for reading my contribution but It is little bit difficult to response on each comment separately every time that’s why I’ll respond on all comments by accumulating these in my next article in next week so please submit your query cackbajpai@gmail.com

  33. Prashant karia says:

    What if when employer have not given exemption benefit of HRA since employee was not able to produce Rent slip. and tax was deducted by employer. can employee claim exemption of HRA and claim refund?

  34. Vijender Singh says:

    R/sir, what is the of defination of salary for the calculation of value of rent free accomodation.

  35. j.khetan says:

    sir,
    i want to know if rent is paid to parents then also a rent receipts is required.

  36. S.K. Srivastava says:

    I would like to know that if a person is staying in the company’s provided house and taken home loan and his house is rented then what will be the tax implications ?

  37. Prashant R. karia says:

    What if when employer have not given exemption benefit of HRA since employee was not able to produce Rent slip. and tax was deducted by employer. can employee claim exemption of HRA and claim refund?

  38. CA CKBAJPAI says:

    To Mr.RK Khatrtri

    First I am not able to understand your query completely.
    what I mean to say in my article is that HRA & deduction on account of repayment Home Loan (u/s 80C) both can be claimed simultaneously and there is no restriction. no doubt, deduction u/s 80C for repayment of home loan and deduction on account of interest on home loan are subject to other conditions. Those are not discussed in my article and can covered separately.

  39. CA CKBAJPAI says:

    To J. Udaipuria

    Even house is in joint name but see who is the real owner. I understand that it is your father who actually bore the cost. we must consider the concept of “substance over form”.
    That’s why I believe that father should be treated as owner.
    It is not advisable to pay full rent to mother only, it may lead litigation.

  40. Ruchi says:

    Very useful article but what is date of applicability of circular no-8/2013 whether it is applicable from date of publication or from 1st April 2013

  41. J. Udaipuria says:

    Q. If employee stay at parent house, can he claim exemption for HRA?

    A. Yes, if he paid the rent actually to his parent.

    Sir, In your above Q&A I want to clear one more point in this regard.

    Suppose my parents have own registered flat in their joint names and full
    payment has been made by father. Can rent be paid to mother considering there is nothing contributed from his account into the flat.

  42. Y.K. Gupta says:

    Dear Mr. Bajpai, Indeed, it’s very informative and useful article.
    Regards,
    Y.K. Gupta

  43. CA Bhanu Goel says:

    Precise and informative article

  44. R.K.KHATTRI says:

    Q. Can an employee avail tax benefit of HRA and Home loan both together?

    Ans. As per your ans yes, it is not surprisable that which person taken a home and also financeed for the same he is claiming house rent allowance benifit, because repayment of loan & intt benefit allowed if he have take passetion after that he is caliming HRA, that will be allowed, please think again & confirm accordingly. from safter side of employer whose deducted/ alowed HRA benifit.

    with regards.

    R.K.Khattri (AGM Accounts) KLJ Polymers & Chemicals Ltd.

    Q. If person have own residence and again purchasing one house and taking loan, he can avail benifit of repayment of laon u/s 80 C and payment of interest under loss from house property.

    Please confirm & oblige.

    with regards.

    R.K.Khattri

Leave a Reply

Your email address will not be published. Required fields are marked *