House Rent Allowance (HRA) Exemption Calculation under Section 10(13A) of Income Tax Act
House Rent Allowance (HRA) is an allowance given by many Indian employers, including government employers, to salaried employees in India to help them meet the cost of rent of House occupied by them on lease or rental basis. HRA is exempt from tax under Section 10(13A) of the Income Tax Act, subject to certain conditions.
House Rent Allowance forms part of taxable salary income of an individual and an employee may be eligible to receive it, if his employer chooses to offer the allowance. Thus a salaried employee may be eligible for House Rent Allowance (HRA) irrespective of Whether he/she stays in a rented/leased accommodation or resides in his/her own house.
As stated earlier, House Rent Allowance received by a salaried employee is exempt from tax under Section 10(13A) of the Income Tax Act, subject to the following conditions:
· House Rent Allowance (HRA) is part of the salary package offered by the employer to the employee
· The employee receiving HRA stays in a leased/rented accommodation and pays rent for it.
· Rent paid by the salaried employee exceeds 10% of his/her salary.
Rent paid by a salaried employee to his/her parents, for occupying a house owned by them, is eligible for exemption under Indian Income Tax Act. However rent paid by a salaried employee to his/her spouse, for occupying a house owned by the spouse, is not eligible for exemption under Indian Income Tax Act.
You must have valid rental receipts, for having paid the rent, in order to claim tax exemption on House Rent Allowance (HRA).
How is the Income Tax HRA exemption computed under Section 10(13A)?
The exemption of House Rent Allowance (HRA) is computed as the minimum of the following:
· The actual amount of HRA received.
· 50% of the salary for individuals residing in metro cities (Delhi, Mumbai, Chennai or Kolkata) and 40% otherwise.
· Rent paid in excess of 10% of salary (basic salary + dearness allowance).
Let us take the example of an individual residing in Chennai, India and receiving a salary income, comprising a Basic Pay of Rs 30,000 per month. Let us assume that this individual receives an HRA of Rs 20,000 per month from his employer. If he rents a house/apartment in Chennai for Rs 10,000 per month, then the HRA eligible for exemption is the least of the following:
· The actual HRA received – Rs 20,000
· 50% of the salary (since he is staying in a metro city) – Rs 15,000
· Excess of rent paid over 10% salary: Rs.10,000 – (10% of Rs.30,000 i.e. Rs.3,000) = Rs. 7,000
Thus HRA eligible for tax exemption is Rs. 7,000 and the balance of HRA received i.e. (Rs.20,000 – Rs.7,000) = Rs.13,000 will be chargeable to income tax.
It must however be noted that if an individual resides in his own property and also gets an HRA from his employer, he will not be entitled for the HRA exemption under the Indian Income Tax Act.