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About HRA
House Rent Allowance that commonly known as HRA. HRA is an amount which is paid by employers to its employees as a part of their salaries. HRA is given to provide employees with tax benefits towards the payment for accommodations every year. The decision to pay HRA to be paid to the employee is made by the employer on the basis of a number of different criteria such as the amount of salary and their city of residence. According to the section 10(13A) of Income Tax Act, HRA is a special allowance specifically granted to an employee by his employer towards payment of rent for residence of the employee.
HRA granted to the employee is exempt to the extent of the least of the following:
| For Metro cities (i.e., Delhi, Kolkata, Mumbai, Chennai) | For Other cities |
| HRA actually received for the relevant period | HRA actually received for the relevant period |
| Rent paid (-) 10% of the salary for the relevant period | Rent paid (-) 10% of the salary for the relevant period |
| 50% of salary for the relevant period | 40% of salary for the relevant period |
Condition for the exemption:
- Exemption is not available to an assessee who resides in his own house, or in a house for which he has not outlaid the expenditure of rent.
- Salary here refers to the basic salary, dearness allowance, if provided in terms of employment and commission as a fixed percentage of turnovers.
- Relevant period means the period during which the said accommodation was occupied by the assessee during the previous year.
- If the rent payable is more than Rs 1 lakh then it is mandatory to provide the landlord’s PAN to claim HRA exemption. In case the landlord doesn’t pose the same, a signed declaration regarding the same would be needed.
Benefit of HRA
The major benefit of the house rent allowance is that it serves as a medium to reduce the taxable income of the individual salaried person, which therefore leads to a reduction in the tax that individual required to pay.
Frequently asked questions
- How my HRA will be calculated if for 4 months I have resided in Mumbai and for rest of the year I have stayed at jaipur?
- In this case the HRA will be calculated proportionately according to the time of accommodation in metro city and non metro city. Hence, for 4 months it will be in accordance of metro city and 8 months in accordance with non metro city. The relevant year must be a financial year.
- I work in Gurugram but my place of accommodation is Delhi, so my HRA will in accordance of Delhi or gurugram?
- The HRA will calculate in accordance of Delhi as here place of accommodation matters not the place of work.
- Is there any requirement of documents to claim the exemption?
- There is no as such requirement of any document but you must have the rent receipts and the copy of rent agreement as evidence. Sometimes the HR also demands it.
- Are the salaried employees only entitled to HRA?
- Yes the salaried employees are only entitled to HRA but others like self employed person could also avail the exemption under section 80GG from the least of the following
- Rs 5000 per month
- 25% of the adjusted total income
- Yes the salaried employees are only entitled to HRA but others like self employed person could also avail the exemption under section 80GG from the least of the following
- Actual rent (-) 10% of income.
- Can I claim the exemption of HRA and interest on house loan deduction at the same time?
- Yes both the benefits could be availed at the same time in the following cases when the own residence is situated in a different city or the residence is not in a condition to accommodate. But if the house is vacant then the provisions of notional rent will be applicable.
- I live with my parents can I also claim HRA?
- Yes you can claim exemption provided you pay the rent to your parents and also enter into the rent agreement with them. Remember that the rent must be included in your parent’s rental income.
- Does the above case apply in case of spouse also?
- No, the above provision doesn’t apply to the spouse as generally there is no as such legal transaction with the spouse.
- I have received the arrears of salary (basic, da, HRA) of the previous year in FY 2018-2019. Whether this is to be included/excluded for calculating HRA exemption?
- HRA forms part of salary and salary arrears are calculated according to the section 89(1). Hence HRA is allowed as per this section.
- Are government employees eligible to HRA?
- Yes the government employees are also eligible to HRA but they are discarded if they reside in government accommodation.
- I own a house in jaipur but I reside in pune on rent for work am I able to claim HRA?
- Yes you can claim HRA as your own house is situated in another city and according to the provision a person could claim HRA if he doesn’t own any place of residence in the city where he had rented out.
