HRA Exemptions and Claims, and TDS on Rent: Know More

House Rent Allowance (HRA) is a major allowance given to workers by their employers in order to cover the rent expense. Salaried Taxpayers in India must understand the calculation of exemptions of HRA, how to avail HRA, and TDS on rent so that they can claim the due benefit and prevent any Non-Compliance.

HRA Calculation

Based on the Income Tax Act, the exempted value of HRA is determined on the basis of the least of three numbers:

1. The actual rent paid minus 10% of the Salary;

2. 40% to 50% of the Salary. The rate is different according to place 50% for metro cities and 40% for non-metro cities;

3. Rent Paid

Salary = Basic + Dearness Allowance + Commission Earned as percentage of Turnover

Only those who live on rent can claim HRA

HRA recovery is permissible only when the employee lives on rent. For supporting the claim, rent has to be paid through a bank mode, and proper documents, such as an agreement of rent or rent receipts, should be provided. Further, if the rent is exceeding Rs. 50,000 per month, TDS should be deducted under Section 194-IB of the Income Tax Act at 2%. For instance, on rent of Rs. 50,000 per month, the TDS shall be Rs. 1,000.

Non-Compliance

Non-compliance with the TDS requirements can lead to notices from the Income Tax Department, so compliance is important. Moreover, false HRA claims can result in heavy penalties, even up to 200% of the claimed amount. Employees must ensure they are taking the correct route so they do not have to suffer from this consequence.