House Rent Allowance - HRA

What is House Rent Allowance?

House Rent Allowance (HRA) is one of important component of Salary package given to employee by their employer. Its allowance given by employer to its  employee to meet employee's expense towards renting an accommodation. 

Tax exemption under Income Tax Act for HRA is allowed to salaried persons who are occupying a rented accommodation. It is being regulated by 2A of Income Tax Rules, 1962 and Section 10(13A) of the Income Tax Act, 1961.

HRA can be exempted only in following conditions:

• The employee must not own the property in which he / she is residing.
• Employees must be paying rent for the accommodation.
• Such rent must be more than 10 per cent of his/her salary.

Note: Employee can not exempt Rent paid by him / her if HRA component is not their in his / her salary package. In case Self employed professionals can claim the benefits on house rent expenses under section 80GG.

How to Calculate HRA Tax emxemption?

Least of following three will be exempt from Income Tax:

• 50% of (Basic Salary + DA) in case of residing in Metro cities (Delhi, Mumbai, Chennai and Kolkata) or 40% of Basic Salary + DA in case of other cities.
• Actual HRA received by employee from employer as part of salary.
• Actual rent paid by employee less 10% of Basic Salary.

Examples of Tax Exemption on House Rent:

Example 1:Person X earns a basic salary of Rs. 40,000 per month and rents an apartment in Delhi for Rs. 20,000 per month.

In this case, no Income Tax exemption on rent paid by person X because there is no HRA component mentioned in his / her salary package.

Example 2:Person X earns a basic salary of Rs. 40,000 per month, Rs. 25,000 per month as HRA. He / She pays rent of Rs. 20,000 for an apartment in Delhi.

In this case, the least value of following three will be exempted from Income Tax:

50% of Basic Salary : 20,000/-

Actual HRA : 25,000/-

Actual Rent - 10% Basic Salary : 20,000/- - 4,000/- = 16,000/-

Example 3:Person X earns a basic salary of Rs. 40,000 per month, Rs. 25,000 per month as HRA. He / She pays rent of Rs. 22,000 for an apartment in Pune.

In this case, the least value of following three will be exempted from Income Tax:
40% of Basic Salary : 16,000/-
Actual HRA : 25,000/-
Actual Rent - 10% Basic Salary : 22,000/- - 4,000/- = 18,000/-

FAQ on HRA:

Can I pay rent to my parents or spouse to avail HRA benefits?

You can pay rent to your parents, however, they need to account for the same under’Income from House property’ and will be entitled to pay tax for the same.

On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws.

Can I simultaneously avail tax benefits on my home loan and HRA?

The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other.

As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

Do I need to submit any proof for my HRA claim?

You need to submit proof of rent paid through rent receipts. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.

If rent paid is more than 15,000/- then PAN of owner must be required.