House Rent Allowance (HRA): As per Section 10(13A) of India’s Income Tax Act, the salaried class receives a House rent allowance (HRA). A deduction is permissible according to Rule 2A under Section 10(13A) of the Income Tax Rules. One can claim exemption on their HRA under the Income Tax Act if one stays in a rented house and accept an HRA from their employer.
The actual rent paid and the place of residence, which is the salary, on which the deduction is based on the HRA. The place of residence is essential. The tax exemption on HRA for Delhi, Chennai, Mumbai, and Kolkata, is 50 percent of the basic salary, while it is 40 percent of the basic salary for other cities.
The city of residence is to be acknowledged for calculating HRA deduction.
The most negligible value of these is permitted as tax exemption on HRA:
Actual rent allowance the employer contributes as part of salary in the appropriate period during which the rental accommodation was occupied. The actual rent paid for the house is 50 percent of basic salary, less 10 percent of basic pay if one stays in Mumbai, Chennai, Calcutta, Delhi or 40 percent if one resides in other cities.
Only for the rented premises, the rent must actually be paid to claim the exemption that one occupies.
Also, the employee must not own the rented premises. As long as the employee does not own the rented property, as up to the limits specified, the exemption of HRA will be available to that person.
The salary basically means basic salary and includes dearness allowance, for the purpose of this deduction if the terms of employment render it, and commission are provided on the basis of a fixed percentage of the gross turnover achieved by the employee.
The deduction is obtainable only when the rented house is occupied by the employee and not for any time after that. It is to be noted that HRA and the tax benefits for home loans are two different aspects.
In case a person is paying rent for an accommodation, that person can claim tax benefits on the HRA component of their salary while also availing tax benefits on a home loan.
One need to submit proof of rent paid through rent receipts, duly stamped and signed, along with other necessary details such as the owner’s name, the rented residence address, period of rent etc.
How it applies:- For example, assume a person earns a basic salary of Rs 40,000 per month and the person also rents a flat in Bangalore for Rs 10,000 per month. The person’s actual HRA is Rs 16,000. The person is eligible for 50 percent of the basic pay for HRA exemption.
- Actual HRA received – Rs 16,000
- 50 percent of basic salary – Rs 20,000
- Excess of rent paid over 10 percent of salary, i.e., Rs 10,000 fewer Rs 4,000 – Rs 6,000.
The least exemption allowable for HRA deduction as such will be Rs 6,000 per month.