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House Rent Allowance (HRA) Taxability and Working / Calculation of Taxable HRA

HRA is a part of an employee's salary package that is meant to cover the cost of renting a home. The Income Tax Act allows for a deduction of HRA from taxable income up to the minimum of: 1) actual HRA received, 2) actual rent paid minus 10% of basic salary, or 3) 50%/40% of basic salary depending on location. For HRA to be deductible, the employee must actually pay rent and the home cannot be owned by the employee. Salary is defined as basic salary plus DA and commission based on a fixed percentage of turnover for the period the rented home was occupied.

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780 views1 page

House Rent Allowance (HRA) Taxability and Working / Calculation of Taxable HRA

HRA is a part of an employee's salary package that is meant to cover the cost of renting a home. The Income Tax Act allows for a deduction of HRA from taxable income up to the minimum of: 1) actual HRA received, 2) actual rent paid minus 10% of basic salary, or 3) 50%/40% of basic salary depending on location. For HRA to be deductible, the employee must actually pay rent and the home cannot be owned by the employee. Salary is defined as basic salary plus DA and commission based on a fixed percentage of turnover for the period the rented home was occupied.

Uploaded by

Paymaster Services
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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House Rent Allowance (HRA) Taxability and

Working / Calculation of Taxable HRA


Employees generally receive a house rent allowance (HRA) from their
employers. This is a part of the salary package, in accordance with the terms
and conditions of employment. HRA is given to meet the cost of a rented
house taken by the employee for his stay.The Income Tax Act allows for
deduction in respect of the HRA paid to employees. The exemption on HRA is
covered under Section 10(13A) of the Income Tax Act and Rule 2A of the
Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA
is an allowance and is subject to income tax.

An employee can claim exemption on his HRA under the Income Tax Act if he
stays in a rented house and is in receipt of HRA from his employer. In order to
claim the deduction, an employee must actually pay rent for the house which
he occupies.

The rented premises must not be owned by him. In case one stays in an own
house, nothing is deductible and the entire amount of HRA received is subject
to tax. As long as the rented house is not owned by the assessee, the
exemption of HRA will be available up to the the minimum of the following
three options:

1. Actual house rent allowance received from your employer


2. Actual house rent paid by you minus 10% of your basic salary
3. 50% of your basic salary if you live in a metro or 40% of your basic
salary if you live in a non-metro

This minimum of above is allowed as income tax exemption on house rent


allowance.

Salary here means basic salary which includes dearness allowance if the
terms of employment provide for it, and commission based on a fixed
percentage of turnover achieved by the employee. The deduction will be
available only for the period during which the rented house is occupied by the
employee and not for any period after that.

Meaning of Salary for calculation the exemption of HRA

 Salary means (Basic + D.A + Commission based on fixed percentage


on turnover).
 Salary is to be taken in respect of the period during which the period
accommodation is occupied by the employee in the previous year.

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