► Income Tax Exemptions - HRAHouse Rent Allowance is an allowance given by the employer to the employee for taking care of his rental or accommodation expenses. This HRA can be claimed as exemptions subject to certain conditions. The employer can choose to offer HRA in Salary Package irrespective of whether one lives in a rented house or in his own house. If you live in your own house you are not eligible for HRA exemption.
Eligibility Condition for HRA ExemptionTo be eligible for HRA exemption, you must first receive HRA in your salary and live in a rented accommodation for which you pay the rent. So if you live in a house you own, you will not be eligible for HRA exemption.
To claim HRA exemption :• You should receive HRA from your employer in your salary.
• You should live in a rented accommodation for which you pay the rent.
• Your rent should be more than 10% of your salary.
Calculation of HRA exemptionThe actual HRA is exempt from tax is the least of the following :
• Actual HRA received from employer
• 50% of Salary (Basic + D.A.) in the case of metros or 40% in case of non-metros
• Actual rent paid minus 10% of Salary (Basic + D.A.)
Defination of SalaryIn the context of tax exemption for House Rent Allowance, Salary is defined as the sum of basic, dearness allowance and a percentage of commissions of turnover achieved by employee.
E.g. If you earn a salary of Rs.40,000/-, the HRA works out to Rs.20,000/- (50% of the salary). Let us assume that you pay a rent of Rs.15,000/- for an accommodation in Mumbai. Now the amount of rent paid minus 10% of the salary (Rs.4,000/-), which is Rs.11,000/-, being the least is the HRA exempt from tax. The balance Rs.9,000/- (Rs.20,000/- minus Rs.11,000/-) is the taxable HRA. However, note that the actual HRA need not be 50% of Basic Salary.
Other Considerations of HRAIf you stay in a house which belongs to your parents and you pay rent to them, then you can claim HRA. However, the income that your parents earn will need to be shown as HRA in case from house property in their income tax returns.
Rent receipts need to be produced as proof to your employer to show that you are indeed paying rent to claim HRA.
If you own a home and have a home loan on it, you can still avail of the HRA benefits along with the home loan tax benefits. It does not matter where your house is located, both the home loan income tax benefits and the house rent allowance benefits can be availed simultaneously. If your home is in the same city as you are renting in, you can justify why you have chosen to stay on rent and still claim the HRA exemption.