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House Rent Allowance [HRA] | Company Vakil

Employees usually receive a house rent allowance (HRA) from their employers. This is a part of their salary package, in accordance with the terms and conditions of employment. HRA is given to meet the expense of a rented house taken by the employee for his residence. The Income Tax Act allows for the deduction in respect of the HRA paid to the employees. The exemption on HRA is covered u/s 10(13A) of the Income Tax Act and the Rule 2A of the Income Tax Rules. It is to be noted that the complete HRA is not deductible. HRA is an allowance and is liable to income tax. An employee may claim exemption on his House Rent Allowance (HRA) under the Income Tax Act if he resides in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee should actually pay rent for the house in which he resides. The rented place must not be owned by him. In case one stays in an owned house, nothing is deductible and the complete amount of HRA received is liable to tax.

How to Calculate HRA?

Your HRA calculation depends on the following four factors. These factors are mentioned below:

  • Salary
  • HRA component of salary
  • Rent paid
  • Location of the rented residence

The Tax Exemption from House Rent Allowance:

The deduction authorized with respect to the HRA is the least of the following amount:

  • The actual HRA received by the employee from the employer; (Suppose Rs 15,000/-)
  • 50% of the[basic salary + DA]     (Suppose comes out to be Rs  50,000/-)

Note: If you are living in metro cities then it is 40% of (basic + DA) or

  • The actual rent paid less than 10% of basic salary + DA (Suppose comes out to be Rs 18,000/-)

Then, in this case, the allowable HRA will be Rs 15,000/-.

Cases in which the Rent exceeds Rs 1, 00,000/- yearly:

In case you are residing in a house on rent and the rent for the same is more than of Rs 1, 00,000/- per annum in such cases the renter is obligated to obtain the landlord’s PAN and same is necessary to be mentioned while claiming the deduction for the HRA.  

What if your landlord is an NRI?

In such case also the renter should not fail to remember to pay the rent only after deducting the TDS of 30%, otherwise, you will lose out on the HRA exemption.

What if the Landlord does not have PAN?

In the case where the Landlord does not have a PAN, then, in that case, a declaration refers circular no. 8/2013 dated 10 October 2013 is necessary to be given by the landlord.

Claim Deduction on Home Loan Interest as well as HRA:

Generally, it’s a myth that if the interest on own House Rent Allowance is claimed as deduction them one cannot claim the HRA, though this is not true one can claim both the things at the same time and it has no bearing towards the home loan interest deduction.

In Cases the Employees is not getting HRA:

In the case where the employee is living in a rented House Rent Allowance and paying rent for the accommodation whether furnished or unfurnished but doesn’t receive HRA from his employer, in such a case also one can claim deduction under Section 80GG.

However certain Conditions are required to be fulfilled to claim this deduction:

  • one must be a salaried person or self-employed
  • The HRA must not be received at any time during the year for which you are claiming 80GG
  • Any of the following should not own a residential accommodation at the location where you currently reside, perform the duties of the office, or employment or carry on business or profession.
  1. You or
  2. Your spouse or
  3. Your minor child or
  4. HUF of which you are a member

Note that in case you own any residential property at any place other than the location mentioned above, you are not permitted to claim the benefit of that property as that other property will be deemed to be let out in order to claim the deduction u/s 80GG of the act.

 How to Claim Deduction under Section 80GG?

The deduction under section 80GG can be claimed under section 80 GG will be least of the following:

  • Rs 5,000 monthly;
  • 25% of adjusted total income i.e. adjusted income shall mean and include in itself the total Income less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions under section 80C to 80U, except the deduction under section 80GG ;
  • Actual rent less than 10% of adjusted total Income.

Can a person living with a Relative or Parent Claim Deduction of HRA under Deduction?

Let’s understand this concept with an Illustration:

Mrs. Rajvi works at ABCD company. The ABCD company pays HRA to all its employees provides. But she is not living in a rented place but with her parents? Can she claim HRA as a deduction under such circumstances?

Mrs. Rajvi can claim the deduction of such HRA if following things occur:

  • She is paying rent to her parents and
  • She signs a rental agreement with her parents
  • Monthly transfer a sum of money which can be produced as evidence for the same.
  • Most essentially she must thereafter claim the allowance provided to her.

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