ET explains how the exemption against HRA is arrived at, and the conditions to be met to claim the exemption

. House rent allowance (HRA) is a form of allowance employees receive. HRA is exempted from tax under Section 10(13A) of the ncome !ax Act. !he amount of exemption is ta"en to #e the least of amount of HRA received$ excess of rent paid over 10 per cent of salary$ and %0 per cent of salary in case the employee resides in a metro city. &therwise$ '0 per cent of salary. (or the purpose of HRA$ salary means #asic salary plus dearness allowance and commission which is #ased on turnover achieved. &ne important condition is that you should have paid the rent for the house in which you live. &nly such rent is considered for exemption. f you are stayin) in a house for which no rent is paid or paya#le$ then HRA exemption is not availa#le to you. &nly the period for which rent has #een paid is ta"en into account to calculate exemption$ irrespective of the num#er of months for which rent has #een paid. (or purpose of deduction of tax$ payment of rent #y an employee drawin) more than Rs 3$000 as HRA should #e verified throu)h rent receipts$ thou)h no rent receipt is re*uired to avail the HRA per". +o portion of HRA will #e exempt from tax if an assessee lives in his own house or in a house for which no rent is paid #y him. Also$ if the actual rent paid #y him is e*ual to or less than 10 per cent of his pay. n other cases$ exemption of HRA received is permissi#le to the extent admissi#le #y applyin) the formulae. HRA is received from an employer #y an employee as a part of the salary pac"a)e$ in terms with the terms and conditions of employment. HRA is )iven to meet the cost of rented premises ta"en #y the employee for his stay. !ax ,eduction on HRA (House Rent Allowance) -y +eelima Shan"ar f you are a salaried person receivin) house rent allowance (HRA) from your employer$ you are entitled for a tax deduction under the ncome !ax Act. !he tax implications of the house rent allowance (HRA) seem to #e a confusin) factor for almost every person. House rent allowance (HRA) is a )rant )iven #y the employer to the employee to meet the cost of rentin) a house. t is #asically a part of the taxa#le salary of an individual and one receives it irrespective of the type of property he resides in. .hether one stays in the rented accommodation or resides in his own house$ he will )et the HRA if his employer chooses to offer the allowance. HRA Deduction !he deductions on HRA are eli)i#le under Section 10(13A) of the ncome !ax Act and will depend on certain laws. An individual can claim an HRA exemption only if the followin) three conditions are satisfied/

An HRA allowance is received as part of the salary pac"a)e. f one is stayin) in a rented accommodation and payin) rent for it. !he rent exceeds 100 of the salary.

-ut it should #e noted that one cannot claim deduction for rent paid to spouse. !he relationship #etween a hus#and and wife is not commercial in nature and therefore the rent paid to spouse is not considered #y the income tax authorities. &n the other hand$ rent paid to the parents is eli)i#le for exemption. f you stay with your

parents and pay rent to them then you can claim for tax deductions. However you need to "eep all your rent receipts since it is the only proof that you are payin) rent. HRA exemptions are only availa#le on su#mission of rent receipts or the rent a)reement. Another factor that effects the tax exemption is the place where you live. f one resides in a metro city$ he is eli)i#le for a deduction of up to %00 of the salary or else the deduction is '00. !he tax implications of the house rent allowance (HRA) seem to #affle most people. !a"in) the case of two individuals$ Ram and Shyam$ who wor" in the same company$ 1anesh 2a)adeesh 3 4o have explained this allowance in detail. !wo si)nificant differences #etween the two individuals$ which is necessary for this study$ is that Ram resides in his own house while Shyam in a rental accommodation. Are #oth eli)i#le for HRA5 6es. -ecause the payment of HRA #y an employer does not depend upon its end7use #y the employee. An employee may prefer to stay in his8her own accommodation #ut will still #e eli)i#le to receive HRA if it is a part of the salary pac"a)e. !his is so$ #ecause HRA$ as its name su))ests$ is an Allowance supplementin) the -asic Salary and ,earness Allowance89ay$ if any$ in a salary pac"a)e. s HRA taxa#le5 n the case of Ram$ who stays in his own house$ tax is paya#le on the full amount of HRA received #y him. Shyam$ livin) in a rented accommodation$ may *ualify for relief on the HRA received #y him$ such relief #ein) dealt with under section 10 (13A) of the ncome !ax Act$ 1:;1. .hen is HRA exempt from tax5 A salaried individual$ in order to )et an exemption on his8her HRA$ must fulfil the followin) #asic conditions/ !he employee must not live in his8her own house He8she must pay rent for accommodation Such rent must #e more than 10 per cent of his8her salary s Shyam exempt from tax5 Shyam fulfils the first two conditions. !he amount of his salary and rent paid #y him will determine whether he meets the last condition too. f Shyam<s monthly salary is Rs 10$000$ he will *ualify for HRA exemption should the rent paid #y him exceed Rs 1$000 (10 per cent of salary). How much will Shyam<s exact exemption amount to5 !he extent to which HRA is exempt is limited to the least of the followin)/ (or residential accommodation located at -om#ay$ ,elhi$ 4alcutta or =adras 7 an amount e*ual to %0 per cent of salary and '0 per cent elsewhere HRA actually received #y the employee >xcess of rent paid over 100 of salary Assume/ Shyam<s annual salary ? Rs 1$@0$000 HRA ? Rs '@$000

=onthly rent ? Rs 3$000 Rental accommodation situated at/ 4ochin Shyam will #e eli)i#le for exemption on HRA to the extent of Rs @'$000 #ein) the least of the followin)/ Rs 'A$000 (#ein) '0 per cent of salary since rented house is at 4ochin) Rs '@$000 (#ein) HRA actually received) Rs @'$000 (annual rent of Rs 3;$000 7 Rs 1@$000 which is 10 per cent of salary) How should one avail of this exemption5 9rovide your employer with information a#out the rent so that he can credit you with the eli)i#le amount of relief #efore deductin) tax at source. 6ou can also claim such exemption when filin) your tax return and see" a refund. n all cases where HRA exceeds Rs ;00 per month (Rs B$@00 per annum)$ evidence of rent paid$ meanin) rent receipts$ have to #e produced. !he assessin) officer has the ri)ht to call for proof of payment. 9oints to remem#er Allowances are different from reim#ursements in that they are usually fixed in value and are paid irrespective of whether the recipient incurs expenditure or not. !hey are aimed at meetin) specific re*uirements li"e entertainment and travel. !hey could also #e of a compensatory nature li"e a #order area8remote area allowance could #e paid to an individual posted in the Ca"shadweep slands. Salary for HRA purposes ? -asic Salary D ,A8,9 D commission (only if calculated as a fixed percenta)e of turnover achieved #y the employee) Salary will not include any arrears for earlier years$ which are received durin) the previous year. f a #onus is received for the last year in the current year$ such amount of #onus will not #e included in HRA salary for the purpose of determinin) HRA exemption. 6ou can include the amount of #onus due to you for the current year which you will receive only in the next year. Salary will include all amounts due (even if not received) pertainin) to the period durin) the previous year durin) which the rental accommodation is occupied #y the employee. HRA actually received has to necessarily pertain to the period in the previous year when the rental accommodation is occupied #y the employee 7 meanin)$ HRA received for that period durin) which the employee was not occupyin) the rental accommodation will not #e exempt. ( f Shyam were occupyin) his rented house for only : months durin) the year$ then the HRA exemption of Rs.@'$000 computed a#ove will )et restricted to Rs.1A$000 (pertainin) to the period of his occupancy). attri#ution http/88www.citehr.com8B;'A;7hra7exempt7tax7dearness7allowance.htmlEixFF@u&F)G!BH

he seasonal frenFy of calculatin) house rent allowance (HRA) surfaces from time to time$ most often towards the end of every financial year or in the #e)innin) of the year$ when we contemplate tax plannin). t is then that certain dou#ts and *ueries a#out the various tax components play havoc on our minds.

!o put some of those *ueries to rest$ here$ we discuss the tax exemption that you can claim from your house rent allowance$ which is part of the mix. Here are some answers to )eneral *ueries a#out the HRA/ 1. How is HRA accounted for in the case of a salaried individual and a self-employed professional? HRA is accounted for in the case of salaried people under Section 10 (13A) of ncome !ax Act$ 1:;1$ in accordance with rule @A of ncome !ax Rules. &n the other hand$ self7employed professionals cannot #e considered for HRA exemption under this act$ as they do not earn a salary. However$ they can claim #enefits on the house rent expenses incurred under section A011$ which resem#les section to 10 (13A) #ut is su#Iect to certain conditions. 2. What are the dependent factors in calculating HRA for the salaried individual? .hen you are calculatin) HRA for tax exemption$ you ta"e into consideration four aspects$ which include salary$ HRA received$ the actual rent paid and where you reside$ i.e. if it is a metro or non7metro city. f these aspects remain constant throu)h the year$ then tax exemption is calculated as a whole annually$ if this is su#Iect to chan)e$ as in a rent hi"e$ pay hi"e or shift in residence etc.$ then it is calculated on a monthly #asis. t is usually rare for all the values to remain constant in a financial year. !he place of residence is si)nificant in HRA calculation as the tax exemption for HRA in a metro city is %0 per cent of the #asic salary$ while that for non7metro cities is '0 per cent of the #asic salary. !his holds true especially when you wor" in a metro city$ #ut reside in a non7metro city. n this case$ only your city of residence will #e considered for calculatin) your HRA. . !an " pay rent to my parents or spouse to avail HRA #enefits? 6ou can pay rent to your parents. -ut$ your parents will then need to account for the same under J ncome from other sourcesJ and will #e entitled to pay tax for the same. However$ you cannot pay rent to your spouse. n view of the relationship when you ta"e up residence to)ether$ such a transaction does not #ear merit under tax laws. Sham transactions can only spell trou#le under scrutinyK so steer clear of these. $. Do " need to su#mit any proof for my HRA claim? 6ou need to su#mit proof of rent paid throu)h rent receipts$ once at the #e)innin) of the year and once towards the end of the financial year. t should have a one rupee revenue stamp affixed with the si)nature of the person who has received the rent$ alon) with other details such as the rented residence address$ rent paid$ and name of the person who rents it. $. How do " calculate my HRA? !o fi)ure out how much HRA exemption you are eli)i#le for$ consider the followin) three values/ a. !he actual rent allowance that the employer provides you as part of your salary #. !he amount of rent you pay for your house in excess of 10 per cent of your #asic pay

c. %0 per cent of your #asic salary$ when you reside in a metro city or '0 per cent if you reside in a non7metro city. !he least value of these three values is allowed as tax exemption on your HRA. 6ou can discuss restructurin) your pay structure with your employer in order to avail the most of your HRA tax #enefit. Here is a sample illustration for your understandin)/ Sunitha earns a #asic salary of Rs. '0$000 per month and rents an apartment in ,elhi for Rs. @0$000 per month (hence eli)i#le for a %0 per cent of the #asic pay for HRA exemption). !he actual HRA she receives is Rs. @%$000. !hese values are considered to find out her HRA tax exemption/ a. Actual HRA received$ i.e. Rs. @%$000$ #. %0 per cent of the #asic salary$ i.e. Rs. @0$000$ c. >xcess of rent paid over 10 per cent of salary$ i.e. Rs. @0$000 minus Rs. '$000 is Rs. 1;$000 !he value considered for her actual HRA exemption will #e the least value of the a#ove fi)ures. Hence$ the taxa#le HRA amount for Sunitha per month will #e Rs. @%$000 L 1;$000 (availa#le HRA deduction) ? Rs. :$000. %. !an " simultaneously avail ta& #enefits on my home loan and HRA? !he tax #enefits for home loan and HRA are two separate entities and have no direct #earin) on each other. As lon) as you are payin) rent for an accommodation$ you can claim tax #enefits on the HRA component of your salary$ while also availin) tax #enefits on your home loan. !his could #e the case if your own home is rented out or you wor" from another city etc. However$ you need to account for any rental income you receive from the property you own under income from other sources.

'H"()* +,- *H,-.D /(,W A0,-' HRA A(D 'A1 02(23"'*

House Rent Allowance (HRA)$ is an important component in our salary slips$ with upto 300 of #asic pay (D,9) in metros. HRA is the allowance )iven to meet the staff<s expenses towards rentin) an accommodation. !hou)h very simple in concept and calculation$ the tax implications of the HRA$ puFFles many a people. Here are B must "nows$ to help you utilise this component of your salary in a tax efficient manner. 14 !onditions you need to satisfy for a HRA e&emption Gnder Section 10 of the ncome !ax Act$ certain exemptions are permissi#le on the received HRA. !o claim such exemptions one must satisfy the #elow conditions. !he employee must not own the property in which he is residin). >mployees must #e payin) rent for the accommodation in which residin). Such rent must #e more than 10 per cent of his8her salary (see section %). if not$ an exemption cannot #e availed if there is no HRA component in the salary. 24 !alculating HRA for ta& e&emption HRA tax exemption is #ased on the HRA received$ #asic pay$ actual rent paid as well as if you stay in metro or non7metro. !he amount exempted from the tax calculations is the least of the followin). !he actual rental allowance paid #y the employer as part of the salary.

!he actual rent paid$ from which$ 100 of the #asic pay is deducted$ %00 of the #asic salary if residin) in a metro or '00 if in a non7metro. 4 HRA #enefits in case of rent paid to parents f you are residin) in a house owned #y your parents and you are payin) rent to them$ technically$ they are the landlords. 6ou could$ thus$ claim an exemption$ provided they show the same transaction in their income tax returns. Rent to hus#and8wife are not permissi#le$ as a hus#and and wife relationship is not considered commercial and are also are meant to stay to)ether. $4 5roof to #e su#mitted for HRA claims f the house rent paid is upto Rs. 3000 per month$ then rent receipt is not mandatory. &therwise you will have to su#mit the rent receipt proofs to claim the tax deduction. A one rupee revenue stamp affixed with the si)nature of landlord receivin) the rent$ with other details of the rented address$ rent paid and name of the person who rents it$ need to #e mentioned on the receipt. %4 6eaning of salary for HRA calculation Salary for HRA purposes is as follows/ -asic salary (-asic 9ay plus ,earness 9ay) ,earness Allowance 4ommissions earned if any !his salary will not include arrears of earlier years$ received durin) the previous year for which the claim is made. 74 +ou could claim HRA e&emption as well as a home loan ta& #enefit at the same time HRA exemption could #e availed even if you are claimin) a home loan tax #enefit. (or a home loan$ tax #enefits are availa#le towards the repayment of principal. So$ as lon) as you meet the criteria for a home loan deduction as well for a HRA exemption$ you could )o ahead and claim #oth tax #enefits. !his could #e possi#le$ in cases where you may #e wor"in) in another city. 84 5eriod in which HRA e&emption can #e claimed !he period in which the HRA is actually received from the employer$ must necessarily pertain to the period in which the employee actually pays rent for his accommodation. n case HRA is received for a period in which no rental accommodation is occupied #y the employee$ exemption cannot #e claimed.

House Rent Allowance 9HRA4 'a& deduction 3A:

#y A#hinav 1ulechha on +ovem#er 1'$ @013 House Rent Allowance is exempt su#Iect to conditions under Section 10(13A) of the ncome !ax Act. f you are employed$ in all li"elihood$ you must #e )ettin) House Rent Allowance (HRA) as part of your salary. 6ou have to deal with House Rent allowance at 3 points durin) the year/

As part of fillin) investment declaration in April7=ay$ you have to specify the rent paid per month. 6our employer will use this info to calculate your monthly !,S deduction from salary. .hen the employer calls for proof of investment$ )enerally you are re*uired to provide rent a)reement copy D rent receipts (each company has a different policy$ some are strict$ some are laxM) At the time of filin) income tax return$ your form 1; will contain an exemption relatin) to house rent allowance. f you have for)otten to claim$ you can claim now

4laimin) House Rent Allowance deduction involves some calculations$ and then there is paperwor" involved$ hence a lot of *ueries and confusions. Hence$ have tried to compile some (ANs to help you claim the ri)ht deductions. will #e really happy to answer any *ueries of readers in this re)ard Who can claim House Rent Allowance? &nly if you are in employment and )ettin) a OsalaryP$ you can claim deduction of house rent allowance. n case you are a self7employed professional$ no sweatQ 7thou)h you cannot claim house rent allowance exemption$ you can claim exemption under section A011 ( wil do a detailed post on that section in comin) days).

How to calculate exemption in respect of House Rent Allowance? .hen you are calculatin) HRA for tax exemption$ consider the followin) points/

6our Salary HRA received in your salary House Rent paid #y you/ 6ou can )et tax exemption only when the house rent paid #y you is more than 1; per cent of your salary.

R 9lace of residence/ f you are livin) in a metro city (=um#ai$ Hol"ata$ ,elhi or 4hennai) then tax exemption on HRA is %00 of the #asic salary$ while that for non7metro cities is '00 of the #asic salary. Simple steps are given below to calculate your taxable amount in HRA: A/ (ind out how much HRA you have received in your salary -/ 4alculate %0 0 of your #asic salary (if livin) in metro) else '0 0 of your -asic Salary 4/ 4alculate excess rent paid over 100 of your salary (Actual rent paid L 100 of your salary)$ that will #e the amount that is fully exempted from tax. ,/ !axa#le amount/ (HRA Received L >xcess Rent paid over 100 of salary) ? A L 4 *ample e&ample to calculate ta& e&emption on HRA =r Amit earns a #asic salary of Rs %0$000 per month and lives in a rented apartment in =um#ai. He pays Rs @%$000 per month as house rent. !he actual HRA he receives is Rs 30$000. How much will #e his taxa#le amount in HRA received #y him5

Actual HRA received 30$000 %0 per cent of the #asic salary$(metro 4ity) @%$000 >xcess of rent paid over 100 of salary/ @%$000(Actual rent) L Rs %$000(100 of %0$000)

@0$000$

So on the a#ove amount of Rs 2;<;;;$ he will )et tax exemption

!axa#le Amount/ (HRA received7>xemption on HRA) ? Rs. 30$000 L @0$000? Rs. 1;<;;;

Important note: I the above mentioned actors remain constant throughout the year, then exemption can be calculated on an annual basis, however, i even a single parameter changes, then house rent allowance exemption has to be done monthly and summed up or year! For this purpose, download this calculator here that will help you calculate the correct exemption for the year: ,&.+C&A, HRA >S>=9! &+ 4AC4GCA!&R Can I get tax exemption for the entire year e en if I had li ed in a rented accommodation only for ! months in that year?

!ax exemption for house rent allowance is allowed only for that part of the year in which you have lived in a rented accommodation and rent is paid #y you. f you have lived for rent for only @ months$ you can use the calculator and enter rent paid details for only @ months$ for rest of the months$ you will have to enter Fero. !he calculator will automatically calculate and )rant you exemption for @ months and return the exemption amount. .hile calculatin) tax exemption on HRA$ only salary of the period durin) which rental accommodation was occupied will #e considered. Also$ salary is determined on due #asis( considerin) #asic salary$ dearness allowance and commission). !his means that if you receive due salary of earlier years or advance salary for future years$ it will not #e considered while calculatin) the tax exemption. In what cases I am not eligi"le for tax exemption in respect to HRA? 6ou will (,' #e eli)i#le for tax exemption on HRA if$

f you live in your own house$ f you live in a house where you donJt pay any rent i.e.$ livin) in a relativeJs place etc f the rent paid #y you is less than 100 of your #asic salary. f you pay house rent to your spouse$ this does not *ualify for exemption as she is not the owner of the house.

-ut you can claim exemption on rent paid to others includin) parents$ #rother$ sister in7laws etc provided that they own the house and re)istry is in their name. Can I claim for tax exemption if my rent payment is due and not paid? Also$ you need to pay the rent #efore claimin) for tax exemption. f rent is due #ut not paid$ you would not #e eli)i#le to )et tax exemption. A proof of rent payment (receipts from the landlord) needs to #e provided to the employer while calculatin) the HRA tax exemption in the monthly tax calculation. Can I consider my wife#s salary also for claiming tax exemption? f #oth hus#and and wife are wor"in) and livin) in the same rented house$ #oth can claim HRA su#Iect to the share of rent paid #y them individually. -oth can claim exemption up to their share of rent paid #y them. $o I always need to pro ide %A& details of my landlord while claiming for tax exemption? 6ou need to provide 9A+ details of landlord if rent exceeds Rs. 1.0 lac in a year. Also note that ncome !ax ,epartment ti)htened its focus on #o)us HRA >xemption claimed #y salaried employees in income tax returns. Refer to this article on economic times here What if my landlord does not hold %A& Card? Will i get tax exemption in that case? Accordin) to the 4-,! circular$ if your landlord does not have a 9A+$ he has to provide a declaration with his si)nature and his complete name and address$ that he does not have a 9A+ card. Alon) with it$ he has to identify himself #y attachin) valid identification proofs. I am ha ing a property which is under construction, can i a ail HRA tax exemption on this property?

+o$ as under construction property does not *ualify for tax exemption. I am ha ing Home 'oan, can i still claim for tax exemption on HRA? .ell Home Coan and HRA does not have an impact on each other. f your own home is rented out or you wor" from another city etc then As lon) as you are payin) rent for an accommodation$ you can claim tax #enefits on the HRA component of your salary$ while also availin) tax #enefits on your home loan. 9lease account for any rental income you receive from the property you own under income from House 9roperty. What are the %roofs to "e su"mitted while claiming for tax exemption on HRA? (ollowin) documents as proofs are re*uired to #e su#mitted in order to avail HRA exemption #enefits. Rent receipt from Candlord$ Rent A)reement from Candlord and CandlordJs 9A+ details When do i need to pro ide rent receipts for a ailing the HRA exemption? 6ou need to provide proof of rent paid #y you in the form of rent receipts. f the amount of rent paid is less than Rs 3000 the su#mission of rent receipts is not mandatory$ otherwise su#mission of rent receipts is necessary for availin) the HRA exemption. $o I need any other supporting document when paying rent "y cash? Also$ if the rent is paid #y cash and the amount is more than Rs %000$ then on the rent receipt a revenue stamp of Rs 1 is re*uired to #e pasted on the rent receipt and si)ned across #y the landlord. Details of HRA in 3orm 17 Havin) su#mitted the necessary proofs for claimin) tax exemption and fulfillin) other necessary conditions to )et tax exemption$ you can find your HRA details in (orm 1; provided #y your employer. -elow screen shows the HRA tax exemption in (orm 1;.

Same details you are re*uired to fill in your ncome !ax Return (orm$ "'R1 3orm !here is only one column in !R1P ncome (rom SalaryP for fillin) up your char)ea#le ncome earned as Salary or 9ension. Here in this column you are re*uired to fill your 1ross Salary which includes all deductions$ allowances etc. -elow is the screenshot of !R1$ here in the column mar"ed in red$ you have to fill your 1ross Salary details.

"'R2 3orm -elow is the screenshot of Schedule S in !R@ (orm.

Salary (>xcludin) all exempt8non7exempt allowances$ per*uisites 3 profit in lieu of salary ) should #e filled from 1ross Salary column shown in (orm 1; screenshot a#ove. (ill the other matchin) columns li"e 9rofits in Cieu of Salary$ Talue of prere*uisites from the a#ove (orm1;.

f you have for)otten to claim for HRA tax exemption last year$ you can still claim it now. !his time the taxa#le income would #e more$ #ecause employer would have deducted tax on it. +ow when you claim it in !R you are li"ely to pay less tax this time and your tax lia#ility will reduce. !here are some cases where you have paid more tax than due you mi)ht )et refund also. Hope this article was useful to you. (or any *ueries or su))ested please write to us. 7 See more at/ http/88sohamfp.com8house7rent7allowance8Esthash.S&-xC%cC.dpuf