HRA Exemption, Calculation & Recent Judgments

Section 10(13a) House Rent Allownace (HRA) Meaning, Exemption, Calculation & Recent Judgements

1. Meaning of House Rent Allowance: –

House Rent Allowance (HRA) is an allowance paid by an employer to its employees for covering their house rent. Such allowance is taxable in the hand of the employee. The Exemption on HRA is covered under section 10(13A) of the Income Tax Act, 1961 & Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax.

2. Who can avail House Rent Allowance?

This tax benefit is available only to the salaried individuals (opting for old tax regime) who have the HRA component as part of their salary structure and is staying in rented accommodation.

3. Whether HRA can be claimed by Self-Employed person

Self-employed professionals cannot avail this deduction.

4. Whether Tax Exemption Available Under New Tax Regime

The tax exemption of House Rent Allowance is not available in case you choose the New Tax Regime from FY 2020-21 (AY 2021-22).

5. Maximum Benefit that can be claimed

HRA is exempt u/s 10(13A) to the extent of minimum of the following three amounts: –

1) Actual house rent allowance received from your employer

2) Actual house rent paid by you minus 10% of your basic salary

3) 50% of your basic salary if house is situated in Metro cities (Mumbai, Kolkata, Delhi, Chennai) or 40% of your basic salary for any other place.

• Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
• Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.
• Where the employee has not actually incurred any expenditure on payment of rent, then no exemption of HRA is available.

Note: – Allotted HRA cannot exceed more than 50% of your basic salary. Tax Benefits of HRA along with a home loan interest under section 24B, Repayment of housing loan under section 80C can also be availed.

6. Basic conditions to be satisfied for claiming HRA deduction: –

• This deduction is allowed only when an employee actually pay rent for his residence purpose. If no rent is paid for any period, then no deduction is allowed for that period. Rent receipts may be asked as proof by the income tax officer. No documents are required to be attached at time of filing ITR.
• If there is any change in the amount of salary, rent or HRA or city of residence from metro to non-metro or vice versa during the year then such deduction is calculated on monthly basis. (Case 2 of example for better understanding).
• Even if rent is paid to any family members, HRA is allowed. There is no legal requirement, but it is advisable to pay such rent on monthly basis and through bank transfer.

7.Examples for calculation of exemption/deduction of HRA: –

CASE 1: – WHEN SALARY, HRA & RENT OF THE HOUSE IS SAME THROUGHOUT THE YEAR: –

> Mr. XYZ received the following amount during the Previous Year: –

1. Basic Salary+ Dearness Allowance: – Rs.1,00,000*12 = Rs.12,00,000

2. House Rent Allowance: – Rs.45,000*12 = Rs.5,40,000

3. Actual House Rent in Delhi: – Rs.30,000*12 = Rs.3,60,000

Solution: – Minimum of the following three amounts is allowed as deduction under section 10(13A): –

A.) HRA Received	5,40,000
B.) Actual Rent Paid Minus 10% of Basic Salary= 3,60,000 -1,20,000	2,40,000
C.) 50% of Basic salary= 12,00,000*50%	6,00,000
HRA Exempt under section 10(13A) {Least of the above}	2,40,000

CASE 2: -WHEN SALARY, HRA & RENT OF THE HOUSE IS NOT SAME THROUGHOUT THE YEAR: –

> Salary is not same, and the Rented Accommodation is located in Non-Metro Cities: –

1.Basic Salary + Dearness Allowance for First 9 Months= Rs. 5,000*9= Rs. 45,000

2.Basic Salary+ Dearness Allowance for Next 3 Months= Rs. 6,000*3 = Rs. 18,000

3.H.R.A = Rs. 2,500*12 = Rs. 30,000

4.Rent = Rs. 3,500*12 = Rs. 42,000

Solution: –

Month	HRA received	40% Salary	Rent-10% Salary	HRA Exempt
Apr	2,500	2,000	3,000	2,000
May	2,500	2,000	3,000	2,000
Jun	2,500	2,000	3,000	2,000
Jul	2,500	2,000	3,000	2,000
Aug	2,500	2,000	3,000	2,000
Sep	2,500	2,000	3,000	2,000
Oct	2,500	2,000	3,000	2,000
Nov	2,500	2,000	3,000	2,000
Dec	2,500	2,000	3,000	2,000
Jan	2,500	2,400	2,900	2,400
Feb	2,500	2,400	2,900	2,400
Mar	2,500	2,400	2,900	2,400
HRA Exempt				25,200

8. When do you need a landlord’s PAN?

If the Annual Rent exceeds Rs.1 Lakh then providing the Landlord’s PAN is compulsory. In that Case, Form No. 12 BB is to be submitted to the employer.

Note: – 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 given to the employer. (Circular no. 8/2013)

9. Documents required to submit: –

Documents like Rent Receipts and Rental Agreements must be submitted to the employer to claim a house rent allowance deduction. If the payment of rent is more than Rs.1 lakh per annum, then the PAN of the Landlord must be submitted. Based on these proofs, employers will provide a deduction for HRA in Form 16.

10. Can deduction under Section 80 GG & HRA be claimed simultaneously?

No, only one deduction is allowed at a time.

If an employee receives HRA which is allowed as deductible under this section, then no deduction is allowed under section 80GG.No deduction is allowed under this section if employee does not receive any house rent allowance from employer. However, deduction for rent paid can be claimed under section 80GG.

11. Whether Exemption is available in case of rent paid to wife or other family member

If rent is paid to any family members, HRA is allowed. There is no legal requirement, but it is advisable to pay such rent on monthly basis and through bank transfer.

A. Case Law of Abhay Kumar Mittal v. DCIT-2022:

Facts of the Case: –

The Assessee claimed the benefit of House Rent Allowance (HRA) on rent paid to his wife from September 2012 to March 2013. During the assessment proceedings, Assessing Officer (AO) asked the assessee to explain the capacity of his wife to purchase the property. Assessee said that his wife had purchased the property for which he funded Rs. 87.50 lacs, and the remaining amount was invested from her sources, i.e., the maturity of Fixed Deposits. However, AO noticed that the assessee’s wife had no independent source of income to invest in FDs. Thus, he clubbed the rental income in the hands of the assessee.

CIT(A) confirmed the order of AO. Aggrieved Assessee filed the instant appeal before the Delhi Tribunal.

ITAT Held: –

> The Delhi Tribunal held that though the assessee’s wife had low returned income, she had received a loan from the assessee. She also duly repaid that loan from the redemption of mutual funds and liquidation of fixed deposits.

> There is no bar on the part of the assessee to extend a loan from his known sources of income to his wife. Similarly, there is no bar on the assessee’s wife to repay the loan from her mutual funds and fixed deposits.

> The assessee had paid house rent, and the recipient, the assessee’s wife, had declared the same under the head’s income from house property in her returns which was accepted by the revenue. The house was also registered in the name of the wife.

> The observation that the assessee had got inadequate income; hence he couldn’t afford to purchase a house can’t be accepted as the sources for purchase of the house in the hands of the wife were proved rather never doubted.

Further, CIT(A) contention that the husband cannot pay rent to the wife is devoid of any legal implication supporting any such contention. Hence, keeping in view the entire facts of the case, the benefit of HRA was to be allowed to the assessee.

B. Case Law of Bajrang Prasad Ram Dharani V/s ACIT, Ahmedabad, 2013: –

The Tribunal after examining the condition prescribed u/s 10(13A), and the explanation appended thereto, The Tribunal inferred that the house was owned by the wife is occupied by the assessee and the assessee had submitted the rent receipts and paid the rent through Bank Transfers and since the assessee fulfilled the twin requirements of the provision i.e. Occupation of the House and the Payment of Rent, The Assessee is entitled for the exemption even the rent is paid to the wife.

12. How to claim HRA in income tax return?

The taxable portion of the HRA component should be included as a part of ‘Salary as per Section 17(1)’. An exempt portion of the HRA component is to be added under the heading ‘Allowances to the extent exempt u/s 10’. If you file ITR online through the software, it auto-populates the Form 16 component. In such a case, verify the amount auto-populated with information in Form 16.

13. Whether you can claim exemption for HRA along with Deduction of Home Loan interest.

One can claim HRA exemption as well as the deduction for interest on a home loan if one owns a house but lives in a rented house. Both these tax deductions are allowed only if the house one owns and the house one lives in are at different locations and there is a genuine reason for not living in one’s own house.

For instance: I stay in a rented house in Delhi because I want to avoid a long commute to work. I have also bought a house in Greater Noida where my family lives. I am paying interest on the home loan taken for this property. I can claim a deduction for HRA as well as interest since my workplace is in a different city, or that my office is too far from your house. But it should be noted that sufficient explanations need to be provided to the employer or the Income Tax authority in case there is a scrutiny of the details provided.

14.Whether you can claim exemption for HRA in case you own house in same city?

There should be genuine reason for not living in one’s own house. In case you own a house in the same city, to be on safer side, you should not claim deduction of HRA unless there is a genuine reason for not living in one’s own house.