August 6, 2013
If you’re in the tax bracket and if you want to reduce the tax liability, then you can consider House Rent Allowance (HRA) provided by your employer as part of your salary. Income tax is calculated on the total income and there are items which are excluded, one of them is House Rent Allowance (HRA). Under Section 10 (13A) of the Income Tax Act says that HRA shall not be included in the total income of any person in the previous year for which the Income Tax is calculated.
In order to claim the HRA,
- You should live in a rented accommodation and should pay the rent.
- The accommodation should not be owned by you.
- You should not pay rent to the accommodation that is owned by your spouse, but you can pay rent that is owned by your parents.
- You should have the proof of the rent paid, i.e. Rent Receipt.
- The amount of HRA should be shown in your salary certificate.
Calculation of HRA
The least of the following is exempted from Salary:
- Actual HRA received from the employer
- Rent paid in excess of 10% of Salary
- 40% of Salary (50% for Metro Cities)
- Salary means Basic pay, Dearness Allowance and if provided, Commission of fixed percentage of turnover.
Actual HRA received is Rs.8000/- p.m (Rs.96000/- per annum)
Salary Rs.20000/- p.m (Rs.240000/- per annum)
Actual Rent paid Rs.7000/- p.m (Rs.84000/- per annum)
The least of the following is exempted from Salary from the above example:
- Actual HRA received = Rs.96000/-
- Rent paid in excess of 10% of Salary = Rs.60000/- (Rs.84000 – (10% of Rs.240000))
- 40% of Salary = Rs.96000/- (40% of Rs.240000)
- So, Rs.60000/- is exempted as it is the least amount of the above.