House Rent Allowances or HRA and its calculation

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House Rent Allowances or HRA and its calculation

Home Rent Allowance (HRA)- It is an allowance paid by an empoyer to his employee as a compensation for the rent paid for his residence.

In Modern era, we have seen that people need to work at location chosen by their employer which is mostly away from their home (hometown). Thus to compensate emplyees’ inconvience arising out of shifting from one place to another and living on a rented house or apartment, employers pay them an amount known as HRA.

HRA is paid with salary as a percentage of basic pay. However, in some case it may be paid as fixed amount each month.

How Is HRA Decided?

Calculation of HRA is actually based on salary. However, There are some other factors which affects the amount of HRA. For instance, if employee stays in metro cities like Delhi then the employee is entitled to get an HRA of 50% of (basic salary+Dearness Allowance).

On the contrary if the employee stays in non- metro cities then he is entitled to receive an HRA of 40 % of Salary (basic salary+Dearness Allowance).

House Rent Allowances or HRA and its calculation

CALCULATION OF HRA DEDUCTION UNDER INCOME TAX- SECTION 10 (13A):

 

 Rs

 Rs

 House Rent Allowance

 

 xxx

 Less: Least of the following:

 

 

 A: Actual HRA Received.

 xxx

 

 B: Rent Paid- 1o% of salary

 xxx

 

 C: 40% of Salary (Basic salary+D.A), (50% in case of metro cities)

 xxx

 

 

 

 xxx

 Taxable HRA

 

 xxx

Point to Be Remembered :

You need to remember the following basic rules while calculating HRA Deduction:

1. “Salary” means Basic Pay + Dearness Allowance ( if it forms part of retirement benefits) and any commission based on a fixed percentage on turnover.

2. Generally this deduction is calculated on annual basis. However, if there are changes in Salary, rent or HRA within the year then the calculation can be done monthly.

You May Also Refer : HRA Exemption | House Rent Exemption U/S 10(13A)

3. If an employee does not receives HRA but pays rent for accomodation then he cannot enjoy deduction under Section 10(13A). In this case he can avail deduction u/s 80GG.

4. Deduction u/s 10(13A) and 80GG cannot be availed together.

5. No deduction will be available for any maintenance charges paid by the employee.

6. You can take advantage of tax benefits of HRA along with a home loan.

7. The landlord’s PAN card is mandatory for rent exceeding Rs.1,00,000 per year. The landlord can provide a self-declaration in case if he/she doesn’t have a PAN card.

8. If you are staying with your parents, you can pay rent to your parents and collect a receipt for HRA claim. However, the rules don’t allow you to pay rent to your spouse.

Few examples for calculation of HRA:

Example 1: When there is no change in Salary, Rent and HRA in a Year:

Vivek lives in Delhi and receives a salary of 40,000 per month; HRA received by him is 4000 per month and pays 6000 rs rent monthly. Calculate his Taxable HRA.

Solution:

Rs.

Rs.

 

House Rent Allowance (4000*12)

 

48,000

Less: Least of the following:

 

 

a. Actual HRA Received

48,000

 

b. Rent Paid – 10% of Salary   [72,000-(10% of 480,000)]

24,000

 

c. 40% of Salary (50% in case of Metro Cities) [480,000 x 50%*]

240,000

 

 Least of a, b and c ———>

 

24,000

Taxable HRA (48,000-24,000)

 

24,000

*Since rent is paid in Delhi, 50% of salary has been considered for point C above.

EXAMPLE 2: WHEN THERE IS CHANGE IN SALARY, HRA, AND RENT WITHIN A YEAR

Let’s have a look at the below figures:

Salary for 1st 8 months

50000*8

400000

Salary for next 4 months

55000*4

220000

HRA for 1st 8 months

6000*8

48000

HRA for next 4 months

6600*4

26400

Rent for 1st 5 months

7000*5

35000

Rent for next 7 months

7300*7

51100

Solution:

Month

HRA Received

Rent paid – 10% of Salary

40% of Salary (50% in Metro Cities)

HRA

April

4000

=7000-(50000*10%) i.e 2000

=40% of 50000 i.e 20000

2000

May

4000

=7000-(50000*10%) i.e 2000

=40% of 50000 i.e 20000

2000

June

4000

=7000-(50000*10%) i.e 2000

=40% of 50000 i.e 20000

2000

July

4000

=7000-(50000*10%) i.e 2000

=40% of 50000 i.e 20000

2000

August

4000

=7000-(50000*10%) i.e 2000

=40% of 50000 i.e 20000

2000

Sep

4000

=7300-(50000*10%) i.e 2300

=40% of 50000 i.e 20000

2300

Oct

4000

=7300-(50000*10%) i.e 2300

=40% of 50000 i.e 20000

2300

Nov

4000

=7300-(50000*10%) i.e 2300

=40% of 50000 i.e 20000

2300

Dec

5000

=7300-(55000*10%) i.e 1800

=40% of 55000 i.e 22000

1800

Jan

5000

=7300-(55000*10%) i.e 1800

=40% of 55000 i.e 22000

1800

Feb

5000

=7300-(55000*10%) i.e 1800

=40% of 55000 i.e 22000

1800

March

5000

=7300-(55000*10%) i.e 1800

=40% of 55000 i.e. 22000

1800

 

 

 

 Total exemption

24100

* Rent is assumed to be paid in a non-metro city.

How to show HRA deduction while filling ITR (Income Tax Return):

There is no specific field to show HRA deduction amount in ITR.

The amount of HRA deduction should be adjusted prior to the calculation of income under the head salary. Let us consider the following example.

Salary of Vivek is Rs.2,00,000 and this salary includes HRA as well. But Vivek has not provided HRA Exemption yet. Now suppose his HRA Exempted amount comes Rs 10,000 under section 10 (13A) of Income Tax. So in this scenario Vivek is required to Rs.1,90,000 (2,00,000-10,000) under the head “salary” while filling ITR.

This is all how HRA deduction is treated while filing ITR. We hope it helps you to have a better understanding of HRA Deduction Treatment.

This Article has been Authored by Mr Satish Gupta. The Author of this article can be contacted at [email protected]

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