House Rent Allowance (HRA) is exempted from tax under Section 10(13A) of the Income Tax Act. It is an integral part of a salary package. House Rent Allowance (HRA) is provided by the employer to the employees. This allowance is to meet the cost of renting a house which is taken by the employees to stays. The Salaried Individual who resides in a rented house can claim House Rent Allowance (HRA) to lower the taxes of the individual.The employee should pay rent for the house if he/she intends to claim the deduction. In case one stays in their own house, then nothing is deductible and the entire amount of HRA is subjected to taxability. Further, the rented premises should not be owned by the individuals.

HRA Accountability

The HRA (House Rent Allowance) is accounted for in case of salaried individual under section 10(13A) of Income Tax Act, 1961. But, on the other hand, self-employed professionals are not accountable for HRA exemption under this act, as they do not earn a salary. Further, the self-employed professionals can claim exemption under Section 80GG.

Dependents factors while computing HRA for the Salaried Individuals

While we are computing HRA for the Salaried Individuals, we have to take into account four relevant aspects-

1. Salary; (Basic Salary, Dearness Allowance and commission which is based on Turnover achieved).
2. The Actual Rent paid;
3. The Actual HRA received;
4. The place where you reside i.e. if it is a metropolitan or non-metropolitan.

The place of residence is one of the significant factor in HRA calculation as for the metropolitan cities (like Delhi, Mumbai, Chennai, Kolkata etc) the exemption for HRA is 50% of the basis salary while for the non-metropolitan cities the exemption for HRA is 40% of basis salary.

How is the tax exemption from HRA computed for the Salaried Employee who receives HRA?

The deduction which is available is the minimum of the following amounts-

1. The amount of HRA received;
2. The Actual Rent paid;
3. 50% of basic salary for those living in metro cities (40% of Basic Salary for non-metros).

Here, below is an illustration which will clear all the confusion in respect in computing the HRA.

Question – Mr. X earns a basis salary of Rs. 50,000 per month and rent an apartment in Mumbai for Rs. 20,000 per month. The actual HRA receive is Rs. 30,000?

Answer-

1. Actual HRA received – Rs. 30,000
2. Basis Salary- Rs. 50,000
3. Rent paid- Rs. 20,000

HRA exemption (least of 1, 2 and 3) – Rs. 20,000

Therefore, taxable HRA amounts to 30,000-20,000= Rs.10, 000

Conditions required for claiming HRA exemption

The conditions required for claiming HRA exemption are enlisted here below-

1. The individual should reside in the rented residential accommodation, and pay rent for the same.
2. The individual can claim exemption on rent paid by parents, brother, sister-in-law except the spouse who is disqualified for exemption.
3. If the individual rent the house for only a part of a year, then the HRA exemption can be claim only for that particular period.
4. If the rent is due, but unpaid then the benefit of tax exemption on HRA is not available. The exemption is available only when the rent is actually been paid.
5. If both Husband/wife are working and living in a rented house both can claim HRA subject to rent is shared/paid by both and individually.
6. As per for the year 2012-13, the individual is required to produce the PAN details of landlords if the rent exceeds Rs. 1.8 lakh year or Rs.15,000 per month.

Form 16- Showcases the HRA exemption

The HRA exemption is shown in Form 16. It is computed by the employer and it is reflect in Form 16.

 

Documents required to produced for HRA claim

The individual needs to produce the proof through the rent receipts. The rent receipts should be submitted, one at the beginning of the year and one towards the end of the financial year. The rent receipt should have one rupees stamp revenue stamp paper affixed and the signature of the person, who has received the rent along with other details such as rented residential address, rent paid and name of the person who rents it.

The Income Tax Act allows Salaried Individuals to claim exemptions which acts as an effective saving scheme of Individual.

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