A Detailed Discussion On HRA (House Rent Allowance)

A Detailed Discussion On HRA (House Rent Allowance)

Definition of HRA:

In the simple words, Human rent allowance is the share of the salary of an employee, which is given by his employer for rent accommodation.

Who can claim HRA

The definition clearly suggests that a person, who is living in a rented house, can claim HRA. It is covered under Section 10(13A) of the Income Tax Act. A person can claim its exemption in partly or wholly.

Who is restricted from claiming HRA

An employee, who is actually not residing in a rented accommodation is restricted from claiming it under the prescribed Section of the Income Tax Act.

How HRA is useful for an individual

HRA is useful for an individual as he can save tax by taking its exemption.

Factors estimating HRA:

Basically, there are four factors which help in the estimation of HRA, mentioned below:

1. Gross Salary of an individual.
2. Percentage of HRA to salary.
3. Value of house rent
4. City Of Rented House

How to calculate HRA

The HRA is calculated with one of the lowest valued provisions among three, which are mentioned below:

1. Amount Of HRA transferred by the employer
2. Actual value remunerated ( Rent- 10% of basic salary)
3. For people living in metro cities ( 50% HRA)

For people living in non-metro cities (40% HRA)

The lowest amount among these three can be claimed as HRA.

Now, understand the calculation of it by considering an example,

Consider Shyams basic salary Rs. 40,000 per month

HRA provided by the employer is Rs. 20,000 per month

10% of annual basic salary is Rs. 48,000

Shyam resides in New Delhi (Metro City) and paying the rent of Rs. 15,000 per month.

Lets calculate the amount of the provisions:

Amount transferred by the employer= 40,000*12= Rs. 4, 80,000

Actual amount paid- 15,000*12- 48,000= 1,32,000

Metro city allowance= 50% of basic salary= Rs. 2,40,000

Hence, the amount of the HRA for exemption is 1,32,000, the lowest of the three provisions.

FAQs in the end:

Is there need of the pan card details of the landlord to claim HRA

Not necessarily, but when you are paying rent more than Rs. 1,00,000, then you need to show the pan card details of your landlord in your tax return so that you can claim HRA.

Can I claim house rent allowance when my employer is not paying me HRA

Yes, an individual is allowed to get an exemption of the loan under Section 80GG of Income Tax Act for tax deduction even he does not get any HRA from the side of the employer.

How to claim HRA when you are living with parents

While living with parents, HRA can be claimed if you come in a rent-agreement with your parents.