House rent allowance (HRA) is a reimbursement benefit provided by an employer to the employee to reimburse the cost of accommodation for the time being the employee is serving the organization. HRA is allowed in addition to the basic salary and other fringe benefits to the employee.
The amount of House Rent Allowance (HRA) to be issued to an employee is usually calculated by the employer based on the estimated cost of living in the area where the accommodation of the employee is located including the cost of amenities availed by him. Besides this for employers, HRA calculation for income tax purposes includes taking a certain percentage value of the Salary and other allowance, allowed in total to their employees.
In this post, you will get to know all about HRA calculation for income tax purposes and how a recipient of HRA can claim it in his Income Tax return online.
Provisions related to House Rent Allowance in Income Tax Act, 1961
#1. Section 10 (13A) (Tax Exemption on HRA) –
Any special allowance granted to an employee (taxable assessee) by his employer to meet the expense actually incurred by him on the payment of rent (by any name called) in name of residential accommodation occupied by him to such extent as may be prescribed in regard to the area or place of accommodation and other relevant considerations (amenities used). The section stands un-applicable where the employee owns the residential accommodation or has not incurred any expense for such accommodation occupied by him.
#2. Rule 2A (Limits for Section 10 (13A)) – The limit of amount to be exempted from the computation of the taxable income of the employee receiving HRA:
- The actual amount received for the relevant period of the previous year.
- Actual rent paid minus 10% of the basic salary received.
- 50% salary for basic salary if living in a metro city or 40% for non-metro cities.
#3. Section 80GG (Form 10BA): In case of non-receipt of HRA from an employer, and if any payment is made by the assessee for the rent for self accommodation, a deduction can be claimed under this section which will be lowest of the below ;
- 5000 per month
- 25% of income before computation of deduction under Section 80GG and excluding income received under Section 111A, 115A, 115D and without availing deductions from 80C to 80U.
- Actual rent paid less 10% income.
Note: In tax terms, exemption of HRA shall not be applicable to Self-employed as they do not receive any Salary.
Mention circumstances where HRA is restricted.
The following factors are to be taken into consideration for HRA calculation for income tax by an employee as per Section 10 (13A):
- The Basic Salary
- Place of Accommodation
- Actual Rent paid
- HRA Received from employer
- Additional allowance provided to an employee
For instance, Rahul living in Kanpur receives the following perks from his employer:
|Particulars||Amount (per month)|
|Basic Pay||Rs 3,000|
|Dearness Allowance||Rs 600|
|Conveyance Allowance (from employer )||Rs 500|
|House Rent Allowance (from employer)||Rs 900|
* Actual rent paid by Rahul is Rs 1,000 per month.
|HRA Received from Employer||= 900*12||10,800|
|Less: As per Section 10 (13A) |
HRA shall be least of the following
1. The actual HRA received (900*12) = 10,800
2. Excess of rent paid over 10% salary of the employee.
Salary = 3000*12 = 36,000
10% of Salary = Salary + DA = 10% of (3600 * 12) = 4320
Rent paid = 12,000
HRA = 12,000-4320 = Rs 7680
3. 40% of Salary as he lives in Kanpur
= 40% of Salary +DA
= 40% of (3000+600)*12
HRA = Rs 17,280
|= 7,680||Rs 7,680|
|Taxable HRA||Rs 3,120|
* Salary in general terms includes dearness allowance for HRA computation, while it is exclusive of all other perquisites and allowances.
Claiming House Rent Allowance in Income Tax Return
After the required HRA calculation for income tax is done, it is to be claimed under the required ITR form by the employee. For salaried individual HRA can be claimed under the ITR Form – 1 SAHAJ.
The first part of the form under the ‘Computation of Income and Tax’ head requires the basic salary details of the employee including deductions and perquisites allowed.
The Second part of form under the subheading ‘Exempted Incomes ‘ Select the option ‘Sec 10(13A) – House Rent Allowance and fill in the amount calculated to be exempted from HRA.
No documents in addition or other income sources of the employee to be taken into consideration while doing HRA calculation for income tax. The department can ask for the PAN details of the landlord if the annual rent amount exceeds Rs 1 lakh.
Note: To claim HRA while filing the Income Tax Return, it is necessary to hold rent receipts or the rent agreement as evidence which might be required later by the Income Tax Department, in case of scrutiny.
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