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The seasonal mad frenzy surfaces from time to time. Most often towards the end of every financial year or in the beginning of the year, when we think of tax planning, certain doubts and queries about the various tax components play havoc on our minds. To put some of those queries to rest, we take up for discussion the tax exemption you can claim from your house rent allowance.
(Also read: Home loans and HRA - how the tax works out) 1. How is HRA accounted for in the case of a salaried individual and a self-employed professional?
HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.
2. What are the dependent factors in calculating HRA for the salaried individual?
When you are calculating HRA for tax exemption you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually. If this is subject to change, as in a rent hike, pay hike or shift in residence etc. then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year. The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50 per cent of the basic salary while for non-metros it is 40 per cent of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.
a. The actual rent allowance the employer provides you as part of your salary, b. The actual rent you pay for your house, from which 10 per cent of your basic pay is deducted, c. Fifty per cent of your basic salary when you reside in a metro or 40 per cent if you reside in a non-metro.
The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit. BankBazaar.com is an online loan marketplace. Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
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Story first published on: February 05, 2013 11:07 (IST) Tags: house rent allowance, income tax, HRA
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